Illinois Automobile Dealers Association: EPA fuel economy rules could price some out of financing

June 13, 2012

Staff Report

A recent study shows the average $3,000-price-per-vehicle increase resulting from the newly proposed fuel economy rules will prevent thousands of Illinois drivers from being able to purchase a new vehicle, as financing will not be available.

The model year 2017-2025 fuel economy mandates will, if finalized this summer, raise the fuel economy standard to 54.5 mpg by 2025.

Before a consumer can save money on gas by purchasing a new fuel-efficient car, most consumers first must qualify for a loan to buy that vehicle,” said Pete Sander, president of the Illinois Automobile Dealers Association (IADA). “If the government’s mandates raise the average price of a vehicle by about $3,000, fewer will qualify for financing, denying thousands the opportunity to buy a new vehicle.”

Jim Lombardi of Lombardi Chevrolet-Buick in Wilmington, Ill., and IADA board chairman, added: “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 cannot purchase these new vehicles because the federal government has made them unaffordable, we all lose.”

The proposed rules, combined with the Barack Obama administration’s previous fuel economy mandates, will raise the average price of passenger cars and light trucks for the 2025 model year by nearly $3,000, according to estimates by the Environmental Protection Agency and National Highway Traffic Safety Administration.

The National Automobile Dealers Association (NADA) study, “The Effect of Proposed MY 2017-2025 Corporate Average Fuel Economy (CAFE) Standards on the New Vehicle Market Population,” found that, nationally, nearly 7 million consumers will not qualify for auto financing to cover the government’s estimated additional cost.

Loan qualification is based mainly on the customer’s income, existing debt and the vehicle’s price,” Lombardi said. “The resulting calculation is simple: fewer car shoppers will qualify for auto financing if $3,000 or more is added to the price of a vehicle.”

The study is based on an evaluation of a consumer expenditures report from the U.S. Bureau of Labor Statistics. NADA analyzed the financial profiles and purchasing behavior of a large sample of U. S. consumers to calculate debt-to-income ratio for households. Under a worst-case scenario, with almost $5,000 added to the window sticker, almost 384,000 Illinoisans would be effectively priced out of the new car market.

Sander said the federal government needs to better understand the impact of the proposed fuel economy rules on consumers and auto lending before doubling today’s current mandates.

When the prices of new cars rise, so do the prices of used cars,” Sander said. “College students and working families, who can barely afford a new vehicle, are going to be squeezed further because of these regulations. The proposed MY 2017-2025 fuel economy rules should be delayed until the federal government has a more accurate picture of how car and truck buyers will likely react to higher window stickers.”

From the June 13-19, 2012, issue

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