Automobile Purchases
AUTO FINANCING

Green homes' success cancels auto dealers' argument about unaffordable green cars

by Broderick Perkins

(1/26/2012) ERATE Exclusive - More fuel efficient cars will price 7 million Americans out of the new car market, according to the National Automobile Dealers Association.

The dealers are blowing hot exhaust, according to the U.S. Environmental Protection Agency (EPA) and U.S. Department of Transportation.

Manufacturers passing the buck onto consumers is, unfortunately, the price of reducing the automobile's carbon footprint and saving consumers money on the rising oil-cost end.

To put it another way, "We can't wait," said President Barack Obama.

The Big Three have saved Big Oil long enough.

"It's time to end the taxpayer giveaways to an industry (oil) that rarely has been more profitable, and double-down on a clean energy industry that never has been more promising," Obama said during his recent 2012 State of the Union Address.

The cost of auto fuel efficiency standards

Cars, sport utility vehicles, minivans, and pickup trucks are currently responsible for nearly 60 percent of U.S. transportation-related petroleum use and greenhouse gas emissions, according to the Feds. Cough.

The Obama administration is already on track to raise the average fuel efficiency for that class of vehicles to 35.5 miles per gallon (MPG) by 2016, to lower carbon monoxide emissions that pollute the Earth and change its climate.

The next proposed target is 54.5 MPG by the year 2025.

That's driving the auto industry and NADA nuts.

More vehicles less reliant upon the oil industry. God forbid.

"To work, fuel economy rules must require improvements that are affordable," said New Mexico Ford dealer Don Chalmers, and chairman of NADA's government relations, at recent EPA-NHTSA hearing in Detroit.

He added, "According to EPA and NHTSA, the cumulative cost of all of their fuel economy rules will raise the average price of a vehicle by $3,200. This is not pro-consumer...the actual cost to consumers may be as high as $5,000," said Chalmers referring to an upcoming NADA study.

Chalmers suggested fuel economy standards affecting affordability could put the brakes on auto sales, which rebounded from a low of 10.4 million in 2009 to 12.7 million last year.

During an earlier hearing in San Francisco this month NADA director Forrest McConnell said higher costs associated with reengineering vehicles to be more fuel efficient would make $15,000 the bottom price of new cars.

Autos are often consumers' second most expensive purchase after a home and most consumers finance the purchase with an auto loan. Consumers who couldn't qualify for an auto loan couldn't get a new car. (We'll leave for later the argument that some dealer loans make the purchase much more expensive than necessary right now.)

Unaware of lenders who will "fund an auto loan based on promises of fuel savings," McConnell expressed concern, "If new vehicles don't get sold, their fuel saving or environmental benefits won't materialize."

Savings from auto fuel efficiency standards

From the top down, the auto industry's argument parallels an old one from the new home building industry years ago when state and federal agencies were busting their chops about building more energy efficiency into homes. They were also whining about "added consumer cost."

While green homes do cost more than less energy efficient homes - but by less and less each year - they also re-sell for a premium equal to the extra cost - in addition to the energy cost savings during ownership.

One in four of all new homes sold in 2010 earned the Energy Star seal of approval -- 25 percent, according to the EPA.

Why shouldn't a lender, especially an auto dealer lender, "fund an auto loan based on promises of fuel savings"? How about an auto dealer lender making happen?

An Energy Efficient Mortgage (EEM) was available long before green homes were a proven success.

Remember the "Cash for Clunkers" tax deal for trading in gas-guzzlers?

And remember last summer when gasoline prices spiked after the earthquake-spawned tsunami caused a nuclear meltdown and a shortage of gas-sipping vehicles from Japan? NADA itself forecast trade-in values on popular gas-sipping models would rise by as much as 17 percent - in a single month.

There's also value in more energy efficient vehicles.

The EPA says a 54.5 MPG vehicle would save consumers an average of $6,600 (up to as much as $8,000) in fuel costs over the lifetime of a 2025 vehicle, for a net lifetime savings of up to $4,400 after factoring in related increases in vehicle cost.

Home builders didn't buy it either - at first.

"These unprecedented standards are a remarkable leap forward in improving fuel efficiency, strengthening national security by reducing our dependence on oil, and protecting our climate for generations to come," said U.S. Transportation Secretary Ray LaHood.

As former auto industry great Lee Iaacoa said, "Lead, follow or get out of the way."

Engineer a fleet of under-$15,000, energy efficient vehicles to meet the coming standards. Just do it. If American ingenuity won't do it, Japanese and Chinese ingenuity will do it for us - and to us.

Meanwhile, if one in four new homes sold today is green and the resale value gets a boost worth the added cost, planet-saving cars built in 2025 likely will enjoy the same success.

Finally, millions today already can't afford any shiny new car. So they buy used, they carpool, they do the car sharing thing, they live in a transit-oriented development (TOD) or otherwise find a way to get around outside the new-car box.

Dorothy? We just aren't in Detroit anymore.

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