What Consumers Should Do About CAFE Changes Today

by Gary Foreman


Just recently President Obama announced a change in the CAFE mileage standards. Requirements for passenger vehicles will rise from the current 27.5 mpg to 35.7 mpg by 2015, while light trucks will go from 23.5 mpg to 28.6 mpg. Click here for more. While many are writing about what this means for the environment, auto workers and consumers in the future, we'll look at what consumers should be doing today.

The first thing that we can recognize is that the cost to buy a new car will increase. Automakers will have to make changes to reach the new standards. Those changes will cost money. That cost will be passed on to the consumer.

Professor Robert N. Stavins (Harvard Univ.) was quoted in The Belfer Center for Science and International Affiars saying, "According to the administration, the increases in CAFE standards (including both scheduled increases already on the books and the new Obama proposal) will add on average $1,300 to the cost of producing a new car."

Professor Stavins goes on to say, "Because CAFE standards increase the price of new cars, the standards have the unintentional effect of keeping older, dirtier and less fuel-efficient cars on the road longer. There is abundant empirical research on this issue."

We're going to limit ourselves to the economic factors (not the environmental ones). What the good professor is saying is that you're going to be driving your older car longer. And, he's probably right. On a five-year loan at today's average 7.56% (courtesy of Bankrate.com), that $1,300 would add $26.09 to your monthly car payment. Or a total of $1,565.40 over the five years.

And, you can call me skeptical, but the federal government seems to have a pattern of grossly underestimating how much things will cost. So that $1,300 estimate could be short by hundreds of bucks. So you'll probably stay in your old ride a little longer that you had planned.

What does that mean? It means that you'll need to keep your car in dependable running condition longer. The way to do that is to start taking better care of your wheels now. Preventive maintenance is the cheapest form of car care you can find.

If you haven't already, get familiar with the service intervals in your owner's manual. It will tell you how often to have the oil and other fluids checked or changed. It will also specify when certain procedures (like replacing timing belts) need to be performed.

Don't look at that schedule as something that would be nice to do. If you want your car to last longer, the scheduled maintenance is required. And, don't figure that your car is four years old and it's too late to protect it. Even if you've never changed oil in your car, you'll still help it by beginning regular, routine maintenance now.

Learn to do some of the maintenance yourself. You'll save half by doing your own oil changes. Only simple tools and training are required. Anyone can do it. You don't need to know one end of a socket wrench from another to follow directions. Wikihow.com and DoItYourself.com have step-by-step instructions.

Let's move to the financial front. It's much better to have the money ready to pay for the extra cost as part of the down payment. If you manage to save it up front, it'll only cost you $1,300. But, if you include it in your monthly payments, it'll add another $1,500 or more (depending on your interest rate). So you should begin setting aside an extra $50 or $100 each month in an account dedicated to your next auto purchase. If you don't do that now, the higher auto payment will consume any savings in gasoline.

While it's always difficult to forecast the future, some things are fairly easy to predict. That CAFE requirements will mean that cars will cost more in the future and that some people will delay purchases is almost a truism. So it's the prudent consumer that will start to make adjustments today to avoid financial pain tomorrow.


Gary Foreman

Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com. Gary shares his philosophy of money here. You can follow Gary on Twitter. Gary is also available for audio, video or print interviews. For more info see his media page.

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