New Car Prices Hit $49,766 in October. Rolling Back Fuel Economy Regulations Could Bring Relief.
Here's a Trump reform that could actually make something more affordable.
Car prices have been climbing for years. In September, Kelly Blue Book reports, the average transaction price of vehicles reached $50,000 for the first time ever. This was partly due to consumers rushing to purchase more costly electric vehicles (E.V.s) before federal tax incentives ran out, and the average transaction price has fallen slightly since then. But it remains stubbornly high, hitting $49,766 in October.
President Donald Trump's trade wars certainly haven't helped automobile consumers. But on Wednesday, his administration did something that could actually bring car prices down: It moved to loosen the federal government's Corporate Average Fuel Economy (CAFE) standards.
These standards, which are set by the Transportation Department, regulate how far a vehicle must travel on a gallon of gasoline. Under the proposed rule, a manufacturer's fleet of light-duty vehicles and SUVs will be required to average 34.5 miles per gallon by model year 2031, as opposed to the 50.5 miles per gallon target adopted under former President Joe Biden. The Transportation Department also intends to stop allowing automakers to "buy credits from competitors to offset fines," reports The Wall Street Journal. That system meant windfalls for E.V. manufacturers like Tesla.
The new rule is the latest development in a Republican campaign to roll back vehicle regulations. In May, Republicans overruled the Senate parliamentarian to kill California's E.V. mandate. And in July, the One Big Beautiful Bill Act removed fines for automakers who fail to comply with CAFE standards.
Predictably, Democrats and environmentalists are raising alarms about the proposed rule. Sen. Sheldon Whitehouse (D–R.I.) has called it "terrible" and predicted that if it's finalized, it will saddle the U.S. "with more pollution, higher costs, and worse vehicles." The Climate Justice Alliance called it "a reckless step backward " for the economy and environment. These sentiments track with public opinion; a January poll from Consumer Reports found that 64 percent of drivers supported the government increasing fuel economy standards.
But just because a policy is popular doesn't mean it's good. CAFE standards have long outlived whatever usefulness they might arguably have once had.
Established in response to the oil shocks of the '70s, these standards are the product of a bygone era. Since the inception of CAFE, the U.S. has transitioned from a net importer of energy to the world's largest energy exporter.
The options that drivers have have also drastically changed. In 1978, the first year these standards were implemented, the top-selling car in the United States was the Oldsmobile Cutlass. (The Cutlass was phased out in 1999, and General Motors discontinued Oldsmobile in 2004.) In 2024, the top-selling sedan was Japanese—the Toyota Camry—and the top-selling vehicle was the Ford F-Series trucks. Closely behind Ford, and a few spots ahead of Toyota, was the Tesla Model Y, whose technology was something that could only be dreamed of in the 1970s.
Yes, the fuel efficiency standards are themselves partially responsible for that shift. But market forces were more important. The influx of Japanese vehicles during the '70s was caused by people wanting to avoid lines at gas stations and save money at the pump. Similarly, E.V.s have grown in popularity over the last few years because people want to reduce gas costs and reduce their greenhouse gas footprint.
Even if consumer choice hadn't been the driving factor in improved fuel efficiency, there would be good reasons to scrap CAFE standards. A 2013 study in the American Economic Journal estimated that in their first year, these regulations are 28 times more expensive than a gasoline tax. A 2017 policy brief for Reason Foundation, the nonprofit that publishes this website, found that "Fuel economy standards like CAFE cost three to four times as much to achieve similar gains in fuel economy and emissions reduction as a fuel tax."
In addition to not being a cost-effective way to reduce greenhouse gas emissions, these regulations have added to the sticker price of cars. Before the Obama administration ramped up CAFE standards in 2009, "vehicle prices, adjusted for quality, had been falling," according to a 2016 report by the Heritage Foundation. In the years after, the car costs rose "to $6,200 above the previous trend."
Repealing the Biden-era CAFE standards will probably not reduce car costs immediately, but it will be a good first step in reducing the government's involvement in our decisions—and hopefully it will be a step toward ending these antiquated regulations for good.
