ldquoAffordability is everythingrdquo Welch says Joe Wilssens Photography

“Affordability is everything,” Welch says.

NADA Fears Fuel Regs Will Hurt Many Car Shoppers

“We need to make it possible for people to afford to buy cars,” NADA President Peter Welch says. “We shouldn’t let policies from Washington dictate that.”

TRAVERSE CITY, MI – Cars already are costly, and the head of a trade group representing U.S. auto dealers worries federal fuel-economy mandates will make them even more expensive, pushing them out of the reach of many budget-minded Americans.

“We know something about what consumers want,” Peter Welch, president of the National Automobile Dealers Assn., says during a Center for Automotive Research Management Briefing Seminars session here on government fuel-efficiency mandates.

He says the EPA and other federal agencies should “adapt to the wants and needs of those pesky consumers” as public officials reexamine a mandated 54.5 mpg (4.3 L/100 km) CAFE target for 2025.

“Affordability is everything; it’s the whole game from the consumers’ perspective,” Welch says during a discussion on government fuel-economy and carbon-emission policies.

“We need to make it possible for people to afford to buy cars,” he says. “We shouldn’t let policies from Washington dictate that. If customers aren’t willing to buy them, the policy is for naught.”

The 54.5-mpg CAFE requirement translates to a real-world value of 36 mpg (6.5 L/100 km), the EPA says, based on assumptions of gasoline prices of $2.97 per gallon and a car/truck mix of 53%/47%.

But if those assumptions change, so will the real-world fuel economy. So far this year, trucks account for 63% of U.S. sales and pump prices currently average $2.34.

The WardsAuto Fuel Economy Index shows an average25.4 mpg (9.3 L/100 km) for light vehicles sold in the U.S. in first-half 2017.

Estimates vary on how much more it will cost to equip vehicles with the technology needed to achieve the government targets.

The EPA says the 2025 regulations would cost $875 per vehicle. But NADA and others predict the figure would run into the thousands of dollars.

“Every day at dealerships, people wonder if they can afford the monthly payments of a car they are considering buying,” Welch says. “Customers are smart, do the math and know how to stretch a penny. Like it or not, these are the people determining the fuel-economy issues in this country.”

The EPA says the increased costs of the technology would be mitigated because fuel saved over the life of the vehicle would total $1,650.

But that long-term calculating doesn’t resonate with the average consumer, Welch says. “Getting it back in four or five years is not how customers think at dealerships.”

Average U.S. incomes are not keeping pace with the rising cost of vehicles, he says. “The percentage of personal income necessary to buy a car was 9.5% in 2005. It’s 12% in 2017.”

The average transaction price of a new vehicle is $34,127, up 57% from 20 years ago, Welch says, calling 24% of that increase regulation-related. The average monthly payment on a new car is $509. The average loan term is 69 months, he says. “We’ve never seen it that high.”

A survey indicates two of three consumers are willing to pay about $2,500 to meet government fuel-efficiency standards, says Mitch Bainwol, president and CEO of the Alliance of Automobile Manufacturers. But one in four of polled people say they expect to pay nothing.

Bainwol calls for a compromise that would “modernize” and ease the CAFE targets, saying it would be “the right thing to do.”

The advantage to the Trump Admin., which has indicated a willingness to relax regulations, is that “it’s great politics to find a workable compromise,” Bainwol says.

Despite the protracted CAFE discussions between the auto industry and government regulators, “you look at the world of one of Peter Welch’s dealerships, and there’s just a guy there trying to buy a car,” Bainwol says.

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