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Dealers
Marty Padgett
Ready for a Ford Focus that costs as much as a Fusion--or a more expensive used car?
Today's announcement of new fuel-economy regulations by the Obama administration means the price of a new car is going up--and at the same time, used cars might get pricey as well in a one-two punch to consumers.
By the numbers, the new rules mean from 2012 through 2016, automakers must boost fuel economy 5 percent a year until cars average about 42 mpg and trucks, 26 mpg, for a blended average of 35.5 mpg in 2016. The Obama administration says this will have the net effect of saving nearly 2 billion barrels of oil over the life of the new rules, and will cut carbon-dioxide emissions the same as removing 177 million cars from the road.
At the same time, the new rules are guaranteed to cost you more for your next new car. From automakers to politicians alike, all agreet that the new fuel-economy regulations at minimum, will mean an extra $1,300 tacked on the price of new cars, which President Obama suggests consumers will make back in the resulting lower fuel costs. What if it's $2000 instead, despite the car companies' best efforts to rein in costs? Or $3000? And what if gas prices stay under $2.50 for the next five years? Regardless of the scenario, consumers pay up--and pay upfront for the technology necessary to meet the new standards.
The numbers are tricky. There's no reliable indicator of what things will cost in seven years to be able to predict exactly how much this radical makeover of the U.S. fleet will cost. The only reliable prediction, in fact, is that it will cost more--simply the cost of developing low-consumption new cars and advertising them to an uncertain public.
More involved is the dynamic for used cars. On the one hand, used-car prices are sure to rise as consumers can no longer buy a brand-new Chrysler 300C or Cadillac STS--as those companies get out of the big rear-drive-car business and shift their product mix heavily downward in size and engine output, some will opt instead to buy used and see how the new cars size up later. Since there will be a shortfall of new models as automakers spin on their heels to meet the new rules and to change American tastes roughly overnight, there will be a resulting shortfall in used cars as well. Shutting down production of bigger new cars now means fewer of them for sale later--and at the same time, more of you will want recent-model used cars that are bigger and safer on average, when compared to what you'll be offered in 2016.
Also pushing used-car prices higher: proposed cash-for-clunkers legislation. While some think it's yet another sop to the rich, giving a credit to people who can afford new cars, cash-for-clunkers deals also pull used cars with some value off the market. According to the Detroit News, under a plan still wending through Congress, drivers who turn in a car getting less than 18 mpg and purchasing one with fuel economy better than 22 mpg would get a voucher for $3,500 to $4,500 off a new car. Those incentives might very well take good used cars off the market for families that need low-cost used transportation.
Whatever the end result, the car of the future will look a lot less like today's Chrysler 300 and Ford Crown Victoria and a lot more like the 2011 Chevrolet Volt and the 2011 Ford Fiesta. Of the roughly 300 models sold in the U.S. today, about 130 meet a 30-mpg standard--not the nearly 40-mpg goal that will be required to blend with truck requirements and meet an overall goal of 35.5 miles per gallon, but probably within technological reach. It's the cars in the vast gulf in the middle--the Chevrolet Impalas, the Ford Tauruses and the Toyota Avalons of the world--that have an extremely cloudy future as a result of the new standards.
Duck PunchEnlarge Photo Ready for a Ford Focus that costs as much as a Fusion--or a more expensive used car? Today's announcement of new fuel-economy regulations by the Obama administration means the price of a new car is going up--and at the same time, used cars might get pricey as well in a one-two punch to consumers. By the numbers, the new rules mean from 2012 through 2016, automakers must boost fuel economy 5 percent a year until cars average about 42 mpg and trucks, 26 mpg, for a blended average of 35.5 mpg in 2016. The Obama administration says this will have the net effect of saving nearly 2 billion barrels of oil over the life of the new rules, and will cut carbon-dioxide emissions the same as removing 177 million cars from the road. At the same time, the new rules are guaranteed to cost you more for your next new car. From automakers to politicians alike, all agreet that the new fuel-economy regulations at minimum, will mean an extra $1,300 tacked on the price of new cars, which President Obama suggests consumers will make back in the resulting lower fuel costs. What if it's $2000 instead, despite the car companies' best efforts to rein in costs? Or $3000? And what if gas prices stay under $2.50 for the next five years? Regardless of the scenario, consumers pay up--and pay upfront for the technology necessary to meet the new standards. The numbers are tricky. There's no reliable indicator of what things will cost in seven years to be able to predict exactly how much this radical makeover of the U.S. fleet will cost. The only reliable prediction, in fact, is that it will cost more--simply the cost of developing low-consumption new cars and advertising them to an uncertain public. More involved is the dynamic for used cars. On the one hand, used-car prices are sure to rise as consumers can no longer buy a brand-new Chrysler 300C or Cadillac STS--as those companies get out of the big rear-drive-car business and shift their product mix heavily downward in size and engine output, some will opt instead to buy used and see how the new cars size up later. Since there will be a shortfall of new models as automakers spin on their heels to meet the new rules and to change American tastes roughly overnight, there will be a resulting shortfall in used cars as well. Shutting down production of bigger new cars now means fewer of them for sale later--and at the same time, more of you will want recent-model used cars that are bigger and safer on average, when compared to what you'll be offered in 2016. Also pushing used-car prices higher: proposed cash-for-clunkers legislation. While some think it's yet another sop to the rich, giving a credit to people who can afford new cars, cash-for-clunkers deals also pull used cars with some value off the market. According to the Detroit News, under a plan still wending through Congress, drivers who turn in a car getting less than 18 mpg and purchasing one with fuel economy better than 22 mpg would get a voucher for $3,500 to $4,500 off a new car. Those incentives might very well take good used cars off the market for families that need low-cost used transportation. Whatever the end result, the car of the future will look a lot less like today's Chrysler 300 and Ford Crown Victoria and a lot more like the 2011 Chevrolet Volt and the 2011 Ford Fiesta. Of the roughly 300 models sold in the U.S. today, about 130 meet a 30-mpg standard--not the nearly 40-mpg goal that will be required to blend with truck requirements and meet an overall goal of 35.5 miles per gallon, but probably within technological reach. It's the cars in the vast gulf in the middle--the Chevrolet Impalas, the Ford Tauruses and the Toyota Avalons of the world--that have an extremely cloudy future as a result of the new standards. President Obama's new fuel-economy rules are a Solomonic solution to a vast legal and moral and ethical question of how to wean ourselves from imported energy. It's not a permanent fix, though. While the Alliance of Auto Manufacturers suggests that the new rules will end the debate between states over who sets air-quality standards, there's no legislation to back that up. Any future governor of California could seek a 50-mpg standard, or 100-mpg standard--and then we'll be back where we are today. It all comes down to CAFE. Badly written from the start in 1975, CAFE is at best, a fig leaf for Congress to hide behind while it declines to make us all pay a universal carbon tax that tapers our desire for energy from crude oil and points out the cost of national defense, dollars to donuts. Obama's update of the policy solves a couple of political problems, but it doesn't change the basics of a poorly written set of rules that now are poised to nail car shoppers in both directions, new and used. [New York Times, Detroit News, Detroit Free Press, Green Car Reports; photo, headexplodie]
Responses (4 total)
By Reece #1, Posted: 5/19/2009
A more realistic alternative
Given the need to fix both the US car manufacturers and deal with global warming we have to say is CAFE the right answer? I say not. I agree with the analysis above, certain used cars will become a premium and there will be a lot of importing of second hand cars from Canada and Mexico that cannot be sold in the US because of the stupid rules.
My alternatives?
As others have said raise the petrol tax, this will have three enormous benefits,1) more so than any regulation it was high fuel prices that drove Americans out of their trucks, the only way to keep this up is to keep the price of fuel high. 2) it will reduce the US addiction to oil and 3) the US is facing a massive budget deficit, this cannot go on. It has to be pared back and the only way to do that is to increase tax's live with it unless you want the whole US to end up like California, technically bankrupt.
the second thing I would do is rather than set a mandatory MPG for all cars is to set up a Cap and trade system. This would say ok we want 40 MPG average, but not every car will get it. So for cars that make 40mpg there is no enviro credit or debit. Then for each 1 MPG below that target a negative credit of $200. For each MPG over 40 the owner of the car gets a credit of $100. You then create a market for swapping credits. Thus a person with say a 25 MPG Corvette would need to find a prius or Volt owner to purchase 15MPG of credits ($1500). The benefit of this system is that it allows people to drive the cars they want, but at a price. Car makers can still make corvettes and Camaro's but the owners will have to stump extra money each year for the privilege. It wil also be a bonuse to early adopters of VOLT etc in that they can make back money on the extra cost of their vehicle by getting annual MPG credits. This system would ensure that car makers can make cars people want, but still drive most consumers to smaller and more economical cars, while giving a benefit to those who bear the extra costs of having super effecient cars.
It may seem complex but actually it is not hard to set up electronic trading systems that would automatically match credits against debits.
Furthermore it should be on all cars every year. This will get rid of the perverse effect of CAFE in that it encourages people to keep old clunkers that spew out gases and get terrible MPG.
Manufacturers would still have a driving force to lower average MPG becuase the less debits people have to trade off the beter and the more people will want to have cars that create credits for them.
To me this is a betetr way because it will be the action of consumers that will dictate the actions of car manufacturers, not polticians and bureaucrats.
It is better to let the market handle things than short minded politicians who know nothing about the industry they are making rules for.
I think if the US adopted both of these approaches you would see a reduction in imported oil, increased effeciency in cars, money to pay off the US debt's while maintaining the ability of US car makers to make US style cars (and getting old rust buckets off the street and thus promote people to buy newer cars).
By Reece #2, Posted: 5/19/2009
correction
sorry should say $100 negative credit for each 1 MPG under the target.
By Richard #3, Posted: 5/19/2009
Well...
@Reese: I agree with much of what you've said--especially the gas tax. However, I'm not so sure about this: "It is better to let the market handle things than short minded politicians who know nothing about the industry they are making rules for."
_
The main problem being that (a) the free market system and deregulation of various industries (finance included) is essentially what led us to our current predicament, and (b) the system of debits and credits would have to be overseen by the aforementioned "short minded politicians". It's interesting, but I dunno; it sounds like it could devolve really quickly into a total Kafka-esque bureaucratic nightmare.
_
But gas tax? Totally.
By Burt #4, Posted: 5/21/2009
Count me in
I have a 1998 Windstar with 150,000 miles on it that qualifies for the credit. Too bad it has a lot of life left in it. Guess I'll run the heck out it in the next few months before trading in, rather than use my more fuel efficient car, because hey I still get $4500 for it and I hate to see those good tires and maintenance go to waste. And then I'll see what I can sell for parts, like hood, doors, fenders, radio etc before I drop it off because the government does not care.
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