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New Report Sheds Light on What’s Driving Up Automotive Prices

Hint: It’s not Fuel Economy standards

Improving fuel economy saves consumers thousands of dollars at the pump and offers more choice of vehicles to fit their needs. But automakers and their industry lobbyists have been fighting progress on fuel economy by arguing that improving fuel efficiency makes their vehicles unaffordable for consumers. A new report out from Ceres, (a nonprofit organization for sustainable business development), tackles that charge head on and finds increasing car prices are driven by factors such as luxury features and other sales trends, not fuel economy improvements.

The study points to four key factors that are pushing new car prices up:

  1. More Americans are buying trucks and crossovers , which cost more than sedans on average (and the truck/CUV consumers also tend to have a significantly higher median income than the buyers of sedans);
  2. A stronger economy is creating more demand for new cars, which is pushing car prices higher;
  3. Automakers have been adding more luxury and convenience features across their fleet, even in lower-trim vehicles; and
  4. Greater income inequality in the U.S. means a larger share of new car buyers are more affluent and able to purchase more well-appointed vehicles, pushing the average new car price up even further.

Consider that last point from the report. As wealthier individuals become a larger share of the new car market, and as they gravitate toward more expensive trucks and crossover SUVs, automakers are meeting the demand by building vehicles with more luxury features. Even “entry-level” cars today come with features unheard in past decades including standard air conditioning, power doors and windows, 6-speaker audio systems and high-tech connectivity like Bluetooth and wi-fi.  

However, unlike many of those expensive luxury and convenience features, improved fuel economy pays for itself. In fact, consumers who finance new cars complying with 2025 fuel economy standards would see overall savings from lower fuel costs in the first month of ownership.

The findings of the Ceres report suggest that some automakers are cynically scapegoating fuel economy for higher car prices, all while loading new cars up with high priced features that have taken the industry to near record profits over past several years.

New cars  may be increasingly out of reach for lower- and middle-income Americans, but not because of fuel economy standards. As the authors of the Ceres report put it, “fuel economy rules are simply today’s convenient bogeyman to blame for really long-term trends in the American consumer marketplace.”