Auto shoppers looking for a bargain could soon be in luck. The Trump administration wants to relax fuel economy standards (that’s how far your car travels on a gallon of gas). Doing so, the administration argues, will cause the prices of new vehicles to drop. The intended result is an uptick in new vehicle sales as price savvy shoppers trade in old autos for new ones.
So-called fleet turnover matters. Over the last half century, technology has transformed the driving experience. Cars are more comfortable, more fuel efficient and safer thanks to systems like climate control, power steering and smart airbags. Consumers should benefit from these advances when newly minted vehicles hit the showrooms. Except that’s not happening. Instead, people are holding onto older cars for longer than ever before. The result is vehicles that are, on average, more outdated, dirtier and, most importantly, more dangerous than they should be.
The blame, Trump officials say, lies with fuel economy standards that have caused vehicle prices to rise too far, too fast. The auto industry agrees, arguing that these standards shut millions out of the new car market and prevent many millions more from being able to afford new vehicles that meet their needs.An easing of regulation, we are told, will hold down prices, stimulate demand and make the roads greener and safer.
While such reasoning might seem superficially compelling, it is hardly sound. For one thing, consumers consider more than just price when buying a car. Things like branding, style and reliability also influence choice. Some analysts, like The Fuse’s Leslie Hayward, speculate that gradual improvements in auto manufacturing and durability alone may be giving shoppers an incentive to keep older cars for longer compared to prior years.
If sticker shock is affecting sales, pinning the blame solely on regulations won’t be easy. Other factors thought to push car prices up include higher interest rates on loans, tighter credit markets and design features once reserved for the rich (think heated seats, panoramic sunroofs and flip-up displays). Another possible reason for the price uptick is Trump’s threat of hitting foreign cars (and auto parts) with hefty tariffs. This could explain in part why consumers are passing on new vehicle purchases in favor of used ones.
So far, however, the administration continues to insist that price increases alone, caused by regulation, are what’s curbing demand for new cars.
A fundamental principle of economics is that demand rises as price falls. If regulations are to blame for sticker shock, relaxing those regulations will drive up sales. However, realizing the eco and safety benefits associated with those sales—something the Trump administration insists will happen—is far less certain. Here’s why.
When it comes to saving gas (and the environment), vehicle choice matters. Cars burn less gas than trucks, and new cars burn considerably less gas than old cars. However, fuel economy also depends on driver behavior. Congested routes, idling engines and aggressive driving can dramatically reduce a car’s fuel efficiency, making an otherwise eco-friendly vehicle more of a gas guzzler (and polluter). That’s something Trump’s proposal does not address.
The outlook is even grimmer when it comes to road safety. Nearly 40,000 Americans die in road crashes every year. Fleet turnover should—thanks to systems like blind spot detectors, rearview cameras and emergency braking—lower fatality rates. That’s assuming those at risk could afford new cars. Except they can’t. Research finds road fatality rates to be highest (and growing) among those who earn the least. The average annual salary for this group averages around $26,000. The average cost of a new vehicle is over $36,000. The purported savings associated with slashing fuel economy standards is less than $3000. See the problem?
While a price drop, courtesy of Trump’s proposal, may incentivize some consumers to buy newer, safer cars, it does little to encourage purchases among those who need it the most. This reality raises a question that should be uncomfortable. Cheaper cars may save lives—but whose?