Fuel regs will stymie industry after 2018, NADA economist says

Szakaly: "It's tough to think of consumers willing to pay $3,000 to $7,000 more for the exact same car, just because someone in Washington, D.C., or California says they need to buy it." Photo credit: Greg Horvath

UPDATED: 8/5/14 4:38 pm ET - corrected

TRAVERSE CITY, Mich. -- The federal targets for higher vehicle fuel efficiency will curb the industry’s ability to sell more cars after the end of this decade, a leading economist predicts.

“The challenges associated with this new CAFÉ standards are far underestimated and far greater than the previous CAFÉ regulations were,” said Steven Szakaly, chief economist for the National Automobile Dealers Association, speaking today at the 2014 Management Briefing Seminars.

The industry makes good profits on large vehicles, but it will need to sell unprofitable small vehicles to meet CAFÉ regulations, he said.

The new federal fuel economy guidelines require automakers to deliver average fleet efficiency of 54.5 mpg by 2025. That has already led to a stream of high-mpg small vehicles in the U.S. market.

But many forecasters believe the American preference for larger vehicles is still alive and well.

Szakaly and other economists told the seminars that industry sales will continue surging for the near future, as the industry returns to pre-crash levels. Automakers reported last week that July U.S. sales rose 9 percent to 1.4 million light vehicles -- with an annualized sales rate of 16.5 million. U.S. sales rose 5 percent for the first seven months of the year.

Product decisions

But Szakaly said that potential industry growth beyond that resurgence will be crimped because of product decisions that will be forced to meet regulations.

“As retailers, we always welcome competition and we welcome a wide variety of vehicles,” he said. “But we also want to make sure that consumers have choice and they’re able buy the car they want. It’s a major issue looking out beyond 2018.”

“It’s very hard to see a successful way that either the industry can avoid significant losses, or we cannot see a major impact on sales due to regulation.

“Unless gasoline prices rise significantly, or we see consumers becoming irrational and everyone buying an electric car, it’s tough to think of consumers willing to pay $3,000 to $7,000 more for the exact same car, just because someone in Washington, D.C., or California says they need to buy it.”

Editor's note: The Szakaly quotation in the final paragraph was corrected to reflect that he used the word "irrational." He was misquoted in an earlier version of this story.

You can reach Lindsay Chappell at lchappell@crain.com

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