MPG Rising: When Regulations Drive Up Prices—And Consumers Don’t Mind

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If there’s one thing Americans would seem to hate more than regulations, it’s regulations that directly result in them spending more money out of pocket. So why are so many consumers fans of new government-mandated automobile mileage standards that do just that?

Last summer, a study commissioned by an auto dealership association warned that as government regulations mandating better mileage for new automobiles took effect, the price of a new car could go up by over $12,000 in a worst-case scenario, making the purchase unaffordable to nearly 15 million Americans. Others estimated that the mileage standards would push new-car prices up perhaps $1,000 by 2016, and increase the average purchase price by $2,000 to $3,000 by 2025.

At first glance, this is the sort of government regulation that consumers might absolutely loathe. It’s meddlesome, causing prices to rise and removing decision-making powers from manufacturers and shoppers alike. And yet many consumer groups have voiced strong support for the mileage standards—Consumer Reports, for example.

A new Consumer Federation of America survey shows that the vast majority of consumers themselves are also now on board with the standards, which will push the average new car to hit the 35 MPG mark by 2017, and up to 54.5 MPG by 2025. In the survey, 85% of Americans said they support the requirements. More than 9 in 10 Democrats (92%) are in favor of the government-mandated fuel-economy standards, as are 77% of Republicans.

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There’s no great mystery as to why consumers across the political spectrum support the regulations: The standards just so happen to align with consumer purchase preferences. In the survey, 88% of respondents said that gas mileage would an important factor in what car they purchased next, and 83% said they were worried about gas prices over the next five years.

Average car MPG has been creeping upward for years, and the trend seems to have more to do with what consumers want as opposed to what automakers are being forced to put on the market. According to the University of Michigan Transportation Research Institute, average new car fuel economy measured 24.5 MPG in April 2013, compared to 23.9 MPG the previous year, and 21.2 MPG in April 2008.

Automakers have been incorporating smaller, more fuel-efficient engines and subbing aluminum rather than heavier steel into vehicles to not only meet looming federal fuel standards, but also presumably to deliver a more attractive product to cost-conscious customers. Drivers who do the math understand that a higher-priced car can be a superior value if it costs less to operate. Government data indicates that the 2025 fuel standards will wind up saving consumers an average of $6,600 in gas during the vehicle’s lifetime. So even if a car’s sticker price increases by a couple thousand dollars, owners come out ahead in terms of total costs.

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A new J.D. Power study shows that there are limits to what drivers are willing to pay for to increase fuel efficiency, however. In the survey, drivers were asked to evaluate the desirability of 22 new automobile features. The two features with the highest percentages of drivers saying that they “definitely would” or “probably would” want them were both designed to bolster fuel efficiency. The two features drawing the most interest were a fuel economy indictor and active shutter grille vents, with 79% and 76% of owners, respectively, wanting them in vehicles.

What’s interesting, however, is how drivers change their tune about the desirability of car tech once prices are factored in. For instance, only 61% of drivers said they’d want active shutter grille vents when they found out the feature costs $150. J.D. Power highlighted another fuel-efficiency feature with an even bigger falloff in driver interest due to costs:

Another technology that helps provide better fuel economy is the stop/start system feature, which has a much higher average market price—$500—than the other energy features and also has a lower interest level with new-vehicle owners. Before a price is given, 61% of vehicle owners “definitely would” or “probably would” want the system in their next vehicle. That percentage drops to just 36% when a market price is introduced.

Edmunds has estimated that the added costs of a stop-start system—which saves gas by shutting the engine off when a car is idle, and which is a staple in today’s hybrid cars—pays off for most drivers within a few years of ownership. Still, J.D. Power researchers state that there is a fair amount of confusion among drivers about how the technology works (or if it works for all drivers). So no wonder relatively few drivers are game to drop an extra few hundred bucks on the feature.

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The moral seems to be this rather obvious one: Consumers are willing to pay for products and services that they can understand, that represent good value—and that ideally don’t cost all that much.

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