Dealers Warn Fuel Rules Will Boost Car Costs By $5000: We Break It Down Page 2

January 18, 2012

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Auto dealers have also announced their opposition to the new CAFE regulations. In fact, just yesterday, the National Automobile Dealers Association (NADA) issued a press release warning that the rules could add $5,000 to the cost of a new car by 2025. That's largely due to the cost of the new technology -- hybrid systems, turbocharging, and other improvements -- that companies will need to develop to make their rides more efficient.

As the cost of cars increases, obviously, those cars become harder to sell. Not only do consumers shy away from pricey rides, but for folks who finance their cars, it causes a jump in monthly payments, which can make securing a loan more difficult. For dealers, those are scary propositions.

What impact will they have on car prices?

The EPA and the Obama administration have admitted that the new CAFE rules will require new technology, which will, in turn, cause car prices to rise. By their estimation, the worst-case scenario would be a jump of around $3,200.

NADA is conducting its own evaluation of the CAFE regulations, which should be released in the next few weeks. During yesterday's testimony before a joint committee of the EPA and the National Highway Traffic Safety Administration, Don Chalmers, chairman of NADA’s Government Relations Committee, said that initial results from the study indicate that the CAFE rules would result in higher costs than the EPA estimates -- around $5,000.

We think both numbers are off. In fact, independent analysts think that both may be too high.

Back in June, Boston Consulting Group estimated the cost of a new car to jump $2,000 due to the CAFE regs. That was backed up by Phil Gott at IHS Automotive. And keep in mind, those analyses came out before the EPA announced that it would consider trucks and SUVs separately from passenger cars.

Furthermore, as we saw at the 2012 Detroit Auto Show, automakers are already switching to fuel-efficient tech. Gas-sucking V8 engines were a rarity on the show floor, and in their place we found smaller, smarter four-cylinders, like the one on the forthcoming Cadillac ATS. As these technologies become more common, they benefit from economies of scale, becoming easier and cheaper to produce. That will reduce their cost down the line.

Bottom line: Yes, Virginia, you're going to pay more for a new car in 2025. Due to inflation, that's probably not much of a shock, but the CAFE regulations could add $2,000 or so to the sticker price beyond the cost of inflation.

However, the car, truck or SUV you buy in 2025 will be more efficient, meaning that you'll save in fuel costs over the life of the vehicle. The Obama administration estimates that the CAFE rules could save owners as much as $8,000 over the life of a vehicle. Even if that estimate is extremely optimistic, $2,000 in savings to offset the increased upfront costs seems reasonable.

In other words, there's no need to panic yet. But stay tuned, just in case. 

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