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May 30th, 2009

New Regs Will Boost Compact Car Prices $7,000



Dismal sales, a streamlined business model, and new fuel-efficiency regulations will leave automakers with little choice but to raise the price on their vehicles as soon as the economy rebounds. The price increase is expected to impact smaller vehicles the most. Jim Ostroff, of Kiplinger.com, a long-standing personal finance and business forecasting institution, says the average price of a compact vehicle — like the Honda Civic — could increase by about $7,000!:

The biggest hikes will affect smaller cars. The average cost of compacts, such as Honda Civic, Chevy Aveo, Ford Focus and Toyota Corolla, will climb from about $18,000 today to $25,000 by mid-decade. Less eye-popping hikes will hit larger vehicles. Those price hikes will average 10% to 20% when they’re fully realized, around the same time as the price hikes on compacts hit.

The “new and improved” GM and Chrysler will no longer be able to rely upon the big profits they raked in from high-priced SUVs and trucks. America’s gravitation towards all things “green” has changed the way we view automobiles. That new interest, combined with the White House’s new regulations for greater fuel efficiency, will drive up the demand for compact/hybrid cars tremendously. Besides supply and demand, these new fuel technologies will cost automakers more money to incorporate on the assembly lines:

Car makers also are under the gun to boost average fuel efficiency of their fleets around one-third by 2016. “That will squeeze profits and make all vehicles more expensive since automakers will have to build more hybrids and use turbochargers and direct injection to increase cars’ miles per gallon,” says Bragman. On average, the needed tech upgrades will increase each vehicle’s manufacturing cost by up to $1,500.

If you’re like our reader Gordon who’s gearing up to buy a smaller, more fuel-efficient vehicle, you probably should do so quickly.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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