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Auto dealers warn fuel efficiency proposal will price out millions of buyers

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Nov. 10, 2011: New Ford Focus cars are parked at the Galpin Motors of North Hills car dealership in Los Angeles. (AP)

American auto dealers are pushing back on proposed fuel economy rules that, they claim, would price out millions of buyers from the new-car market, potentially jeopardizing the environmental benefits of the program and the resurgent auto industry itself. 

Throughout the Obama administration's campaign to jack up fuel efficiency, officials claimed that for consumers, the upgrades would pay for themselves. Sure, buyers would pay more for a new vehicle off the lot, but they'd make up that cost in fuel savings in just a few years. 

But the changes from two sets of fuel efficiency standards could add $3,000 to the price of a new car by 2025. And the National Automobile Dealers Association argues that if buyers can't qualify for a loan up front, the rest is fantasy. Cash-strapped buyers instead will go for gas-guzzling used cars or put off buying another car altogether, leaving the fuel-efficient marvels parked in the lots of auto dealers across the country. 

"Where's the environmental savings ... if you can't get the older cars off of the road?" NADA spokesman Bailey Wood said. 

The NADA estimates that by 2025, 6.8 million drivers will no longer qualify for a new-car loan if the proposed fuel efficiency standards go into effect. 

The objections were filed Monday as the federal government closed its comment period for the proposed regulations. The next step is to review the comments and finalize the rule. The government already mandated an average fuel economy of 35.5 miles per gallon by 2016. 

The latest proposal would mandate a 54.5 miles-per-gallon standard by 2025. 

The Obama administration brought some of the biggest automakers in the country on board with the goal last year before rolling out the new target. And they've got plenty of support from advocacy groups. The Consumers Union sided with the administration, submitting comments Monday claiming the changes would save most buyers money "in the very first month of ownership." 

But the auto dealers are hoping to convince the administration to delay the process, until the impact on consumers can be further studied. 

"Fuel economy standards can't just be some number picked out of thin air. They have to be based on consumer demand," Wood said. "If dealers can't sell these vehicles, then you defeat any other benefits you were seeking." 

The NADA based its estimate of the number of drivers who supposedly would be priced out on the assumption that the rules would add roughly $3,000 to the price of a new vehicle by 2025. 

That figure combines the administration's cost estimate for fuel economy standards from 2012-2025. The NADA, though, says that estimate doesn't factor in certain elements like advertising, and pegged the actual increase at more like $5,000. 

Regardless, the group claims millions would be priced out during the loan process. 

"For most households, a light-duty car or truck is the most expensive consumer purchase they make," the NADA said in its lengthy statement to the EPA and NHTSA, noting that most buyers borrow in order to make that purchase. 

During the loan approval process, the group said, "it matters not whether the new vehicles in question offer improved fuel economy performance characteristics compared to the transportation options currently being used by prospective purchasers. ... All that matters is whether prospective purchasers are creditworthy." 

But environmental and consumer groups have lauded the fuel economy standards, particularly at a time when gas prices are again on the rise. The price of a gallon of regular has risen nearly 40 cents over the past year. 

The Consumers Union filed its own set of comments Monday with the federal government and claimed the cost benefit from more efficient vehicles would far outweigh the increase in price tag. 

"The proposed target is reasonable and provides excellent value for consumers," the group said in its statement. "A more efficient fleet will save consumers thousands of dollars in fuel costs. 

Although consumers will be paying slightly more money for more efficient vehicles, they will more than recover this investment through savings at the pump." 

The group also said more than 27,000 consumers submitted comments in favor of the rule in response to an appeal from the organization. 

The Obama administration, in its roll-out last year, said the 2017-2025 changes would add about $2,000 to the price of a new vehicle by 2025. The administration claimed consumers would in turn save between $5,200 and $6,600 on gas over the life of the vehicle. 

"The discounted fuel savings will offset the higher vehicle cost in less than 4 years, and fuel savings will continue for as long as the consumer owns the vehicle," the announcement said. 

The auto manufacturers have been largely supportive of the change, but they continue to express concerns about how consumers will respond. 

A January statement from Mitch Bainwol, head of the Alliance of Automobile Manufacturers, said the "ultimate question" is whether consumers will buy these new cars. 

The Alliance, which represents the bulk of the industry, said compliance costs for the first phase will reach nearly $52 billion. The second phase proposed by EPA and NHTSA is projected to cost between $133 billion and $157 billion. 

"This unprecedented effort and expense will further our country's energy and environmental goals, but only if consumers purchase the more fuel-efficient and climate-friendly, but more expensive, vehicle technologies," Bainwol said. 

In its comments to EPA, the Alliance urged the government to allow for a review of the new standards halfway through the 2017-2025 period -- and tweak them as needed. 

Wood, though, said the NADA wants the government to stop trying to plan fuel efficiency so far in advance. 

"Why is the Obama administration setting fuel economy standards as far as 14 years in the future?" he said. "In 14 years, my 2-year-old will be driving. How can you adequately determine what consumer demand (will be), let alone what people will be driving, in 2025?" 

He also said his group wants the EPA out of the process, leaving the decision to NHTSA.