Why Millions Won’t Be Able to Afford Cars in the Future

  • Share
  • Read Later

By 2025, the government will require an average fuel economy of 54.5 m.p.g. for cars and trucks sold in the U.S. To meet that requirement, automakers must focus on more efficient, technologically sophisticated cars that cost more upfront to build — and whose costs are ultimately passed along to consumers. How much more will these cars cost? And how many Americans will be priced out of owning a car as a result?

These subjects are up for debate, and there’s no shortage of projections.

Last summer, when officials were discussing the possibility of raising fuel-economy standards as high as 62 m.p.g., studies were released (by automaker interests) projecting that the price of a new car would cost nearly $10,000 more by 2025, after adjusting for inflation. Recently, USA Today, the Detroit News and others have cited data released by the National Automobile Dealers Association (NADA), but they’re reporting a wide range of forecasts as to how much new-car prices are expected to increase.

(MORE: Hot Wheels! Top 10 Buzzed-About New Small Cars)

USA Today — and the New York Post and other outlets — give NADA data stating that car prices will be boosted by $2,937 in order to meet 2025 mileage requirements, and that the cheapest new car would cost about $15,700. (The Nissan Versa sedan, which gets 36 m.p.g. on the highway with a manual transmission, holds the current title of Cheapest Car Sold in the U.S., with a starting price of $10,990.) Such a price increase would make a new car unaffordable for 4.2 million low-income Americans — college students, working families — who would no longer qualify for financing.

The NADA-commissioned study offers a range of price increases, though. In a worst-case scenario, new-car prices could be hiked by as much as $12,349, which would result in 14.9 million households not being able to afford a car.

The Detroit News story, meanwhile, focuses on the numbers indicating that upcoming mileage requirements will increase car prices by about $1,000 by 2016, then another $2,000 by 2025, and that as many as 7 million Americans would be priced out of car ownership. Also noted here: the Environmental Protection Agency and the National Highway Traffic Safety Administration — the two entities that are deciding on m.p.g. rules — state that the new requirements will ultimately save drivers money:

“With these standards, passenger cars and trucks are expected to save consumers an average of up to $6,600 in fuel costs over the lifetime of a model year 2025 vehicle for a net lifetime savings of $4,400 after factoring in related increases in vehicle cost. This progress was made with the help of the auto industry, labor, the environmental community, and consumer groups, and it will benefit our nation’s health, environment and the economy for years to come.”

(MORE: Shut Up and Pay, Please: Why Tax Whiners Need to Keep Quiet)

But the fuel-cost savings would be realized only by drivers who could afford the new cars and their higher prices. Many consumers will be scared off by the high upfront costs, rather than seeing the benefit of the lower cost of ownership in the long term. Those priced out of the new-car market would do what they’ve always done and look to used cars. As a result of increased demand for “previously loved” cars, the NADA study says, used-car prices would soar.

How much more expensive would used cars become? And how many households would be unable to afford even a used car as a result of the price increases? There are ways to come up with estimates, but the truth is that no one really knows.

(MORE: Off the Road: 8 Reasons We’re Driving Less)

Among the moving pieces that’ll affect the future prices of new and used cars are the global prices and demand for gasoline, taxes on gasoline and other power sources, technological innovation in the automotive and other industries, and advances in lithium batteries and recharging stations that could make electric cars more feasible for the mainstream. What’ll happen on these and other fronts? We could guess, but that’s all it would be: guesswork.

Brad Tuttle is a reporter at TIME. Find him on Twitter at @bradrtuttle. You can also continue the discussion on TIME’s Facebook page and on Twitter at @TIME.

1 comments
Sort: Newest | Oldest
MillerConnor
MillerConnor

Ill still drive my big block in 2025 and that doesn't even get 18 miles per gallon. As long as people join the Sema Action Network and Vote, good luck with having EVERYONE drive a car that gets 54,5 miles per gallon.