Legislators and regulators need to observe a fundamental Golden Rule: Do not implement new laws if you have not considered or cannot control important unintended consequences.
A perfect example is the Obama Administration’s plan to increase new car mileage standards, from the currently legislated requirement of 35.5 miles per gallon by 2016 to 54.5 mpg by 2025, as an average across each automaker’s complete line of cars and light trucks.
Carmakers reluctantly agreed to the new requirements, to avoid even more onerous standards, or different standards in different states. But the deal does nothing to alter the harsh realities of such a requirement.
First, National Highway Traffic Safety Administration (NHTSA) analyses indicate that the mileage standards will add $3,000 to $4,800 to the average price of new vehicles for models from now until 2025. Moreover, this price increase does not include the $2,000 to $6,000 in total interest charges that many borrowers would have to pay over the life of a 36-60 month loan.
The consequence: 6 million to 11 million low-income drivers will be unable to afford new vehicles during this 13-year period, according to the National Auto Dealers Association (NADA). These drivers will essentially be eliminated from the new vehicle market, because they cannot afford even the least expensive new cars without a loan – and many cannot meet minimal lending standards to get that loan.
These drivers will be forced into the used car market. However, far fewer used cars are available today, because the $3-billion “cash for clunkers” program destroyed 690,000 perfectly drivable cars and trucks that otherwise would have ended up in used car lots. In addition, the poor economy is causing many families to hold onto their older cars longer than ever before.
Exacerbating the situation, the average price of used cars and trucks shot from $8,150 in December 2008 to $11,850 three years later, say the NADA and Wall Street Journal. With interest rates of 5-10% (depending on the bank, its lending standards and a borrower’s financial profile), even used cars are unaffordable for many poor families, if they can find one.
All this forces many poor families to buy “hoopties,” pieces of junk that cost much more to operate than a decent low-mileage used car. These higher operating costs can cripple families in borderline poverty situations.
The compounded financial impact is a “regressive” tax and a war on the poor.
Bishop Harry Jackson is chairman of the High Impact Leadership Coalition and senior pastor of Hope Christian Church in Beltsville, MD, and co-authored, Personal Faith, Public Policy [FrontLine; March 2008] with Tony Perkins, president of the Family Research Council.