A new vehicle could become cheaper to manufacture under the Trump administration’s loosened fuel-economy rules. There’s a catch for consumers, though.
The Transportation Department estimates that drivers may spend more than $1,600 extra on gasoline over a vehicle’s lifetime compared with what they would have paid under the previous standards, Reuters reported Nov. 2.
That’s an unusual trade-off.
In addition, it’s important to note that the new rules don’t guarantee lower prices for car buyers, since manufacturers may not pass on their production savings to consumers. Meanwhile, higher fuel expenses are contingent on future gas prices, the vehicles individuals purchase, and how much they drive.
In response to a legal challenge from California and other states, Ford Motor (F), General Motors (GM), and other major manufacturers are now defending the updated rules.
It makes sense that automakers would support them. Popular gas-powered trucks and SUVs might become more profitable with less stringent fuel-economy regulations, which would also lessen the need to invest in expensive technology.
Stronger margins might also benefit stockholders.
Still, for someone buying a new vehicle, it raises a question: Will a cheaper car today become a more expensive one to own tomorrow?
Ford and GM could save billions under the new rules
The Transportation Department finalized a fleet-wide fuel-economy target of 34.9 miles per gallon by 2031, down from the 50.4 mpg target approved under former President Joe Biden, Reuters reported.
The numbers do not represent the miles that each new car must attain; rather, they represent regulation fleet averages.
The government believes the loosened regulations may lower automakers’ technology costs by $60.6 billion through 2031, according to Reuters.
Ford could save around $5.8 billion, while GM alone could save an estimated $20.4 billion.
These numbers do not necessarily indicate increases in business profitability. Rather, they show anticipated decreases in cost linked to compliance when compared to the prior standards.
Because Ford and GM depend so largely on lucrative gasoline-powered trucks and SUVs, the savings are significant.
Manufacturers were under pressure to implement fuel-saving technology and boost sales of electric cars under the prior regulations. Now they will have greater freedom to choose which cars to develop and market.
The Alliance for Automotive Innovation said in a court document seen by Reuters that manufacturers need stable laws in order to make investment plans and create new models.
“Automakers require certainty and stability in the standards,” the Alliance said.
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Drivers could face a different bill at the gas pump
The potential consumer savings come with an important condition.
In its final rule published Sept. 30, NHTSA said average vehicle costs could decline by $1,289 in model year 2031 if manufacturers pass the savings on to buyers.
The agency did not guarantee that dealership prices would fall by that amount. It also forecasted that, compared with prior requirements, gasoline consumption will rise by 4.6% through 2050.
Reuters reported that the increase represents approximately 121 billion additional gallons of gasoline.
That does not imply that all new cars will lose efficiency. Even as drivers’ actual expenses vary depending on the vehicle, usage, and gas prices, automakers can continue to improve fuel efficiency.
However, there may be a financial trade-off. After saving money at the dealership, consumers may pay more at the pump over the long term.
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California Attorney General Rob Bonta pushed back on the administration’s strategy.
In an Oct. 2 announcement, Bonta said a coalition of 26 states and local governments had challenged the rollback, arguing that NHTSA failed to establish the maximum feasible fuel-economy standards required by law.
Additionally, the group questioned how the government included electric cars in its research.
Ford and GM face a test beyond regulatory savings
Lower compliance expenses may be a welcome relief for shareholders.
While adjusted operating profits rose 3% to $2.7 billion, Ford reported third-quarter sales of $49.5 billion, down 2% from the same period last year.
Ford’s improved profitability, as noted in its Oct. 28 results commentary, was partly due to a stronger mix of higher-margin vehicles, including off-road models.
Reduced regulatory costs may support such an approach. However, additional pressures on manufacturers would remain.
For purchasers, factors including car affordability, finance expenses, insurance, and gas prices are still crucial.
The ongoing legal challenge is another issue. NHTSA’s final rule is scheduled to take effect on Nov. 30, but the litigation introduces uncertainty for manufacturers planning vehicles years ahead.
Whether Ford and GM can turn regulatory savings into higher profits and sales is a crucial concern for investors.
The question for customers is whether a cheaper purchasing price eventually overcomes higher gasoline costs.
Government statistics do not prove that every buyer would experience financial loss. The real expenses will differ from the projected averages.
They do, however, highlight a conflict that car buyers should be aware of.
Related: Ford sets 2027 goal to dethrone Toyota in certified used cars
