Energy Policy:

Auto Dealers' Koblenz says new fuel efficiency standards bad for consumers

With recent auto sales figures showing consumers purchasing more fuel-efficient vehicles as gas prices rise, do the nation's auto dealers have a strong case against the Obama administration's new fuel efficiency standards? During today's OnPoint, Andy Koblenz, counsel and vice president of regulatory affairs at the National Automobile Dealers Association, explains why he believes the standards should be phased in more gradually so consumers will not take a financial hit.

Transcript

Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Andy Koblenz, vice president of legal and regulatory affairs at the National Automobile Dealers Association. Andy, thanks for coming on the show.

Andy Koblenz: Thank you for having us.

Monica Trauzzi: Andy, your group has released a series of studies pointing to the idea that consumers will not be able to get loans for more expensive, more fuel-efficient vehicles under the administration's new fuel economy standards. With recent auto sales figures showing that when gas prices rise, consumers tend to buy more fuel-efficient vehicles. How do you square those facts and figures with your idea that the standards will actually be bad for business?

Andy Koblenz: Well, let me start by saying that dealers support fuel economy increases. In fact, it's because we support fuel economy increases that we're so concerned about the rule. This is all about vehicle affordability. The proposals that the government has put on the table are going to increase the prices of vehicles in current dollars by upwards of three, possibly even more than $3000 per vehicle. We actually-one of our studies said it might be as much as $5,000 a vehicle, but let's go with the government number of $3000 a vehicle. That's going to force an awful lot of people out of the marketplace and it's -- you can't get the savings that's associated with the more fuel-efficient vehicle if you can't afford to buy it. And 90 percent of the vehicles in this country are financed in one form or another, either a lease or a credit sale, and the lenders simply won't lend money to people based upon fuel economy savings. So, the consequences and one of our studies shows that 6.8 million people will be forced out of the new car market. So, simply put, if we raise the prices as much as we're going to have to, we won't get to the other side of the transaction where the car is actually purchased.

Monica Trauzzi: But wouldn't the recent sales figures suggest that people can afford these vehicles?

Andy Koblenz: The price of the cars having gone up, so, no, there's-what's going on in the marketplace today doesn't inform this discussion. Everybody wants more fuel-efficient vehicles, including the dealers, but the issue is whether or not they will be able to and willing to pay for it. And that-when gas prices go up, people do shift somewhat what their preferences are, but not if the price of the vehicle pushes them out of the market. And our concern is that we're going to push an awful lot of people out of the market and actually slow the turnover of vehicles.

Monica Trauzzi: So, if these standards are so bad for vehicle sales, then why aren't automakers opposed to them?

Andy Koblenz: Well, that's a good question. The automakers are really experts on the technology, on building the vehicles and they're saying they can make these vehicles and we believe that. We believe that these vehicles, the technology exists to make the vehicles. But the dealers are the ones that deal with the marketplace on a daily basis and understand what the market is going to bear and that's where our concern comes in. And, if you listen to what the manufacturers said during the testimony on these hearing-in the hearings on these rules, you would hear them sounding the very same themes that we're sounding. There was-one of the manufacturers said that it does no good to build more fuel-efficient vehicles unless a large portion of the American population is willing to buy it. In fact, just this week, the SAE conference up in Michigan, there are a number of engineers who are building these vehicles who are saying this is really all about vehicle affordability. There was a quotation in one of the articles I read today of one of the engineers from one of the auto manufacturers that said, "If the public can't afford the cars, then there won't be any payback in fuel economy." And that's the point we're making. So, we're really in the same place on this as the manufacturers, questioning whether or not the marketplace is going to be able to bear what the mandate is going to put out there.

Monica Trauzzi: OK, the Consumer Federation of America recently released research showing that a buyer with a five-year loan on a car that complies with the 2025 standard would start saving money in the first month after purchase. I mean that sounds like a good deal for consumers.

Andy Koblenz: But the concern is, and what the CFA study doesn't show, is that so many people won't be able to qualify for the loans, that they won't, that people, as their income, excuse me, as the price of the vehicle goes up, the lenders won't lend the money. So, even if the payback is there theoretically, if you can't afford the loan in the first place, you'll never get to achieve the payback. And secondly, there's not a lot of evidence out there of the willingness to pay the extra money, even if you can afford it. So, it's an issue of whether the buying public is able and willing to purchase the new cars and we simply don't know. And, as I said, the manufacturers are expressing these concerns, we're expressing these concerns, and we still have a lot of time to watch the market and figure it out. The rules that have been proposed are really, really early. We have a very expensive new rule going into effect, excuse me, for model year 2012 and we can learn an awful lot from the outcome of that rule, the 2012 to 2016 model years. Before we even learned anything from that, we are already running ahead to set what the rules should be in 2025. There's no need to move this quickly. We can write more precise, more effective, more consumer-friendly and market-friendly rules that will achieve the increases in fuel economy that the dealers want and that everybody wants, but will do so in a more effective fashion. And that's what we're asking for.

Monica Trauzzi: Are there specific things or recommendations that you might have for how the government can help offset the higher cost of these vehicles and perhaps get some people in the door for these loans?

Andy Koblenz: Well, we certainly-the dealers are going to be out there promoting fuel economy. The NADA has a number of programs to promote fuel economy and that's very important. And the dealers are going to sign up for that right away. In fact, Bill Willis, one of our board members who testified in Philadelphia, made these points exactly. He asked people to call his dealership up and they would hear all sorts of promotion of fuel economy. We want to sell fuel economy and the dealers are going to be doing that as best as they can. Nonetheless, the concern remains that if we push the market too far, too fast, we will actually slow the vehicle turnover. We won't get the environmental benefits, we won't get the reduction in the dependence on foreign oil and we will retard the very goal that we're trying to achieve.

Monica Trauzzi: Are you the last group standing in opposition?

Andy Koblenz: No, I actually don't think we are.

Monica Trauzzi: Do you feel like you're standing on your own?

Andy Koblenz: I think there are others out there. Edmunds.com, an automotive website that a lot of people use, said many of the same things. Their testimony suggest that they-they said that's look at the data. Let's see what people are doing today with their purchasing habits and what can we learn from the buying habits today. And they said that the appetite for the American public isn't there yet. So we're not there, but most importantly there's really only one vote that counts and that's the vote of the American consumer. And we are-we want that vote to be heard and we want that vote to drive where the rule goes. And we're concerned that that's not been foremost on the minds of the regulators.

Monica Trauzzi: Are you concerned that with these standards your dealers won't be making the high profits that they have been making off of SUV sales?

Andy Koblenz: No, this isn't about profitability. This is about making sure that the products that are offered to the American public meet up with their desires and to meet their needs. And if we don't, they have other choices and they will go to those other choices. And those other choices are not as favorable to the environment and not as favorable to the economy. So, it's not, this isn't about selling SUVs. This is about ensuring that the American buying public has choices that meet their needs and their desires and in a way that will encourage the fleet turnover, rather than retard it.

Monica Trauzzi: Why are there some auto dealers that have broken away from what your group is saying and are, in fact, supporting?

Andy Koblenz: There are all sorts of opinions out there and that, you know, everyone is entitled to them and we've talked to some of those folks and we just-we see the world a little differently. We're trying to be data driven. We're looking at the marketplace. And, remember, what we're saying is not to not do this, we're saying to slow down. Let's learn and have a more precise, more nuanced rule that is more in line with consumer demand than the rule that we're putting out here. And, as I said, you know, the manufacturers have called for a midterm review. The midterm review is because we're not sure we're getting it right. There's no reason to go as far out as we want. In fact, NHTSA isn't even allowed legally to go out as far as these rules go. Their 2018 to 2022 rules are just provisional because Congress told them we only want you to do this in five-year bites. And we're saying slow down the process. Let's learn from the rules that are going into effect now, so that we can have a more appropriate, effective rule in the out years.

Monica Trauzzi: All right, very interesting. Thank you for coming on the show.

Andy Koblenz: Thank you very much.

Monica Trauzzi: Thanks for watching. We'll see you back here tomorrow.

[End of Audio]

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