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In response to these trends, the National Automobile Dealers Association (NADA) has conducted a study revealing the proposed 54.5 mpg CAFE standards for 2025 will cause a significant increase in the technology as well as the cost required to build vehicles and, in turn, increase the price for each vehicle. As a result, many potential new-car buyers will be forced out of the market.
According to estimates calculated by the Environmental Protection Agency and NHTSA, the efficiency standards will cause the average retail price of passenger cars and light trucks to increase by nearly $3,000 by 2025. NADA’s study, “The Effect of Proposed MY 2017-2025 Corporate Average Fuel Economy (CAFE) Standards on the New Vehicle Market Population,” states that the price hike may be too much for approximately 7 million lower income consumers, such as college students and working families, as they may no longer qualify for auto financing to purchase the more expensive vehicles.
Regarding the 2025 CAFE requirements, Ford dealership owner Don Chalmers said during the NADA press briefing, ”To work, fuel economy improvements must be affordable. While you can mandate what automakers must build, you can’t dictate what customers will buy, nor can you dictate if a bank will make a loan.”
Chalmers continued, “If my customers can’t buy what I’ve got to sell, there are no savings at the gas pump and there is no environmental benefit. If car and truck buyers do not purchase these new products, we all lose.”
Doug Greenhaus, NADA chief regulatory counsel for environment, health, and safety, summed up the sentiment and suggested that the government must better understand the impact of the proposed CAFE regulations on consumers and auto lending before proposing the lofty mpg mandates. Greenhaus urged, “Disregarding vehicle affordability will undermine the environmental and national security benefits the administration is seeking. The proposed MY 2017-2025 fuel economy rules should be deleted until there is a more accurate picture of how prospective buyers will react.”
It’s no secret that the upcoming Corporate Average Fuel Economy targets, whereby all automakers who sell vehicles in the US, must achieve 35.5 miles per gallon as a fleet average between now and 2016 and 54.5 mpg for cars and light trucks by 2025, represent a formidable hurdle.
In order to better achieve these targets and reduce the risk of fines, some manufacturers are finding the best way is to join forces and develop technology together.
One of the latest such endeavors could likely see General Motors and BMW teaming up. The idea is for the General to leverage its expertise in fuel cell and electric vehicle technology, while BMW would provide its own in conventional gas and diesel powertrains.
By joining together, both companies will be able to develop competitive advantages in the marketplace, thanks to reduced R&D and operating costs.
According to Forbes, such a partnership could prove advantageous for GM, enabling it to deliver good quality, fuel efficient vehicles in a variety of international markets, while keeping a cap on overall costs. Forbes believes that offering such vehicles will allow for significant market share gains over the medium and longer term, boosting the price of GM’s stock in the process.
After much debate, the White House has lowered its CAFE target for 2025 from 62 MPG to 54.5.
The original 62 MPG figure has been dragged through the dirt before, having previously been lowered to 56.2 before this current figure. But now, the 1.7-mpg drop helps ease the concerns, however slightly, expressed by the auto industry that this annual mileage increase will drive up the cost of cars and destroy car sales as well as manufacturing jobs.
The CAFE situation dictates that cars will have to be 5% more fuel-efficient every year, from 2017 to 2025. On the one hand, the National Highway Traffic Safety Administration believes that this would add $2,100 to a car’s base price. On the other, according to the Consumer Federation of America, with the earlier 56-mpg revision consumers would save over $6,000 in gasoline costs throughout the car’s lifetime.
As you can tell, even with a revised CAFE target the debate won’t be over anytime soon.