Trump Administration Revises Fuel Economy Standards Impacting the Next Car You Buy

The Trump administration continued to cut regulatory red tape by announcing on Tuesday that the Environmental Protection Agency will revise greenhouse gas and corporate average fuel economy standards set by the Obama administration. The change could impact how much you spend on buying a new car. These standards mandate the average miles per gallon achieved by an automaker’s fleet of vehicles. Setting too strict a standard can make cars and trucks more expensive and out of reach for many drivers.

Under the Obama administration standards, auto manufacturers had to increase the average fuel economy for all cars and trucks sold to 54.5 miles per gallon by 2025. That mandate more than doubled the existing fuel economy standard when the regulation was finalized in 2012.

While the goals behind these standards may have some merit, mandating too strict of standards means automakers have to make tradeoffs to achieve efficiency which can result in harmful consequences. A fuel efficient vehicle using all of the latest technology might be too expensive for the average consumer to buy. The National Automobile Dealers Association forecasted the Obama administration standards will add $3,000 to the average purchase price of a new vehicle by 2025.

The other way automakers can meet the fuel economy standards are by selling smaller and lighter vehicles; think more subcompacts and fewer SUVs and trucks. But that way of meeting the standards goes against the buying preferences of Americans. Sales of SUVs and crossovers have more than doubled since 2010. Truck sales have nearly doubled since then as well, reaching approximately 11.1 million units sold at the end of 2017.

In announcing the decision to change the standards, administrator Pruitt stated it “allows auto manufacturers to make cars that people both want and can afford.”

While there would be fuel savings from vehicles that on average get 54.5 miles per gallon that is only if consumers can afford to purchase a new car or truck. The National Automobile Dealers Association estimated the onerous Obama administration standards will keep 7 million Americans out of the new car market. With a higher purchase price, many drivers will simply keep their old car for a longer period of time or buy a used car instead of a new one.

Interest on the loan can make the savings from better fuel economy disappear. The higher average price of new vehicles has led to ballooning auto loan terms. Data from the Federal Reserve shows the average length of a car loan is now 67 months or five and a half years. That’s seven more car payments on average than drivers were paying a decade ago.

Americans have demonstrated their preferences for driving larger vehicles that keep them safe, comfortable, and that can carry the whole family plus the dog when needed. The Trump administration’s wise decision to revise the Obama administration’s fuel economy and greenhouse gas standards better reflects the preferences of drivers and will make purchasing new cars and trucks affordable.