How the New MPG Standards Will Affect Drivers, Automakers, Car Dealerships & More

  • Share
  • Read Later
Jack Star / PhotoLink / Getty Images

This week, the Obama administration finalized new-car fuel economy rules that’ll nearly double the mpg standards for cars and light trucks by 2025. The new “CAFE” (corporate average fuel economy) standards mandate that automakers average 54.5 mpg for their cars by 2025, compared to 29.7 mpg now. How will consumers and the auto industry as a whole be impacted by such groundbreaking, across-the-board regulations?

Speaking to U.S. News, Jesse Toprak, analyst for the car-research site TrueCar.com, called the new rules a “win-win-win for everybody” (“a win for consumers, a win for manufacturers, and a win for the environment”), but some players appear to be coming out as bigger winners than others. And some of the involved parties say that the regulations actually represent a loss.

Here are some of the effects the new regulations are likely to have in the years to come:

Drivers will pay more upfront. Previously, the National Automobile Dealers Association (NADA) had forecast that new car prices could rise by as much as $12,000 when the new mileage standards take effect. NADA’s more recent studies indicate that the standards will “hike the average price of a new vehicle by nearly $3,000 when fully implemented.” Because of the price increases, NADA states that roughly 7 million people won’t be able to afford new cars. What’s more, “If this rule suppresses new vehicle sales, achieving the nation’s greenhouse gas and energy security goals will be needlessly delayed.”

(MORE: The Party of No: What Happens If Romney and Ryan Win?)

Republican presidential candidate Mitt Romney has also bashed the new standards. In a statement to MLive.com, a Romney spokesperson described the regulations as “extreme,” noting that “The president tells voters that his regulations will save them thousands of dollars at the pump, but always forgets to mention that the savings will be wiped out by having to pay thousands of dollars more upfront for unproven technology that they may not even want.”

But drivers should save in the long run. Despite higher initial costs, cars that get better mileage are expected to wind up as net money-savers for future drivers. A 5 mpg improvement would save over $500 per year in gas for someone who drives 15,000 miles annually. Consumer Reports, which estimates that new technologies will boost car prices by $1,800 to $2,200, says that the price hikes “would be more than offset by fuel savings.” Government sources indicate that drivers will save around $8,000 over the life of a vehicle that meets the new mpg standards.

Natural gas-fueled cars should see a sales boost. The car models with the highest mpg ratings—hybrids and plug-in electric vehicles—obviously stand to benefit when the new mileage standards take hold. But they’re not the only cars likely to experience rising sales. One of the new tweaks to the mpg standards gives extra credits to automakers selling natural-gas-powered vehicles in the U.S. The credits can be used to bump up the manufacturer’s overall mpg average. As Bloomberg reported, Honda is currently the only automaker currently selling such vehicles in the U.S. Naturally, a Honda executive was quoted saying that the credits make sense, not just because the incentives benefit Honda, but because “a dedicated natural gas vehicle reduces CO2 emissions by 25 percent and petroleum consumption by 100 percent.”

(MORE: Top 10 Most Buzzed-About New Small Cars)

Clean diesel car sales will rise too. While pointing out that sales of clean diesel vehicles have already risen 27.5% in the first half of 2012, the Diesel Technology Forum (DTF) issued a statement welcoming the new standards—and proclaiming that these cars will grow more popular because of them. “Because clean diesel autos are 20 to 40 percent more efficient than gasoline vehicles, diesel will be a major player in the nation’s effort to achieve the new mileage standards,” said Allen Schaeffer, DTF executive director.

V8s will virtually disappear. Nowadays, about half of new cars have 4-cylinder engines, up from roughly one-third in 2007. Family cars and SUVs like Ford’s Escape and Edge are now equipped with 4-cylinder engines rather than V6s, and many pickup trucks have downsized to V6s from V8s. Speaking of the V8, Chrysler and Fiat CEO Sergio Marchionne tells the Detroit Free Press that the high-powered engines now used in muscle cars like the Dodge Charger will become “as rare as white flies” thanks to new fuel-economy standards.

Cars will get lighter and lighter. Automakers are shifting to smaller engines not only because they are more fuel efficient, but because they are lighter—allowing cars to get by with less power. In addition to downsizing engines, brands such as Ford, Mazda, GM, and Land Rover are launching major initiatives to drop weight in cars, all with the idea of improving mpg ratings.

(MORE: What’s Hot in Hot (As in: Stolen) Cars)

Dealerships, automakers, and auto workers will cash in. In recent years, drivers have been willing to pay more for small cars not only because of their superior fuel economy, but because the small cars of today come with more options and a better overall feel than the bare-bones, rinky-dink vehicles of the past. As consumers grow more interested in small cars, automakers can get away with charging more for these cars. So, as U.S. News’ Rich Newman put it, the increase mpg standards come as “good news for automakers, because they’re able to make better profits on small cars that typically have razor-thin margins.”

Adam Lee, chairman at Lee Auto Malls of Maine, issued a statement predicting that the new mileage standards “will help me to sell even more cars.” With “absolute confidence,” Lee said that “my customers want cars, trucks and SUVs that go farther on a tank of gas. I support the 54.5 mpg standard because it will keep American automakers competitive in the world market, it will keep my customers happy, and it will help me to sell even more cars.”

For obvious reasons, workers in the auto industry are also welcoming the new standards, which bring with them the need for upgrades, innovations—and more work. “The standards will also provide certainty for manufacturers in planning their investments and creating jobs in the auto industry as they add more fuel-saving technology to their vehicles,” United Auto Workers President Bob King said in a statement. “Bringing this additional content to market requires more engineers and more factory workers, expanding employment in the industry.”

(MORE: 10 Things You Should Be Buying Used)

Um, something or other will happen to help the environment. Somewhat lost amid the debate about new mileage standards is one of their main purposes—to minimize our impact on Mother Nature. Per USA Today, the environmental advocacy group Natural Resources Defense Council offered some insight as to what the regulations mean: “We’re very happy. This is a good rule, a strong rule,” said Roland Hwang, NRDC transportation director. “This is the biggest step this country’s taken to reduce pollution and our dependence on oil since the original 1970s.”

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.

17 comments
Sort: Newest | Oldest
ETSahidu
ETSahidu

Good policy move; shows this guy is in touch with realities...Mitt is just a coward who puts no solution but criticize like a mad goat!!!

eewell
eewell

It will never be met.Average age of a car today is 10.8 years and it will surely increase if this nonsensical standard is allowed to progress.GM and Chrysler will be finished at decade's end.Ford will downsize and leave America and double-digit unemployment will be the norm.By 2025 the automobile landscape will look like Cuba 1959.

John Stephenson
John Stephenson

 You are thinking of the Bush administration.  Obama brought back the auto industry, and now we don't have to worry about Republican's that have been bought off by the oil lobby.

nvrtalk
nvrtalk

I currently average 48mpg with biodiesel. My last tank (first tank after oil change) was 50.05mpg. 4 door mid sized  sedan with wide tires. Oh yeah and it is a 2001.  I am not even and inconsiderate hypermiler - I keep up with traffic.

I'll be happy with a 2010 Polo Blue Motion (or US equivalent) in the next ten years which is rated at 71mpg. 

Technology is there already, it just has to be allowed here.

Constitutionality can be debated elsewhere - such a good idea should not require a mandate - but stupid people are so prevalent. 

Jeanne Kalvar
Jeanne Kalvar

 How long did it take us to put a person on the moon again?

Starshiprarity
Starshiprarity

Many companies are releasing conventional vehicles do over 40mpg. In twelve years, I hope we can see a measly 20% improvement.

eewell
eewell

Those cars are compact and sub compact cars,not the midsize sedan which is the car of choice of most Americans.This is a standard Obama implemented,not congress.Only congress can implement such a law.Obama acted unconstitutionally and this edict by him has no basis in law and is therefore illegitimate and the carmakers are not obligated to obey it.

John Stephenson
John Stephenson

 Please quote the article in the constitution that you think Obama violated.

John Stephenson
John Stephenson

The myth that these cars will cost more is just that, a myth!  Cars have always, and will always change and get better with new ideas and engineering.  GM, Ford, and Chrysler engineers have all said that the changes required will not appreciably affect the price of a car, due to the extended time they have been given to implement the changes.

The fact that Romney thinks cars getting good mileage is a bad thing, should make clear exactly who is a stooge of the oil companies as there is NO other reasonable reason why he would think cars should not get as much MPG as is reasonably possible.

Then again, maybe he needs to be able to buy a huge Mercedes CL class, to hide from the serfs as he tours his kingdom.

mnl1121
mnl1121

It isn't a myth that car prices will go up, it's true. The cost of electric cars is much greater than those of gasoline. It is offset by the cost of gas savings, but the initial cost will be higher unless we find a better way to manufacturer the battery systems that power electric vehicles. 

valente347
valente347

What I don't understand is how Mitt Romney can claim that increased MPG counts as "unproven technology." Isn't a simple math equation all that's needed to prove how much gas these cars will save?

John Stephenson
John Stephenson

 Republicans don't use math, they use Fox News commentator's made-up numbers instead.

mnl1121
mnl1121

I think he is referring to electric motors which haven't been proven to be a viable solution as they still don't allow someone to go great distances and cant be used in certain types of vehicles such as trucks.

mnl1121
mnl1121

It can only go 45 miles or so on its battery power, after that for 300 miles or so it uses gas. That is a nice middle ground solution, but hardly a be all, end all solution.

John Stephenson
John Stephenson

 The Chevy Volt goes any distance you want.  It just does a whole lot better for short distances.

hot_pants
hot_pants

It's just embarrassing, the guy offers no solutions. He just hates on anything that makes big companies have to squirm and evolve. Even when you're looking for any reason not to completely dismiss the dufus he comes out and says the opposite of what he needs to be staying. Talking about FLITT #romney