Are You Aware of the Impact of Your Future Acquisition Costs?

What seems like eons ago, I recall actually smoking a cigar leisurely on an airplane with no malice of thought. There were no sanctions then, since it was later that we learned that second-hand smoke is harmful.

The airlines then sectioned off space for smokers and later made the entire cabin non-smoking. Hotels followed and then public buildings and restaurants were off limits. Even smokers like me agree that these new restrictions were not only reasonable, but necessary.

But, the tree-hugging environmental activists never quite quit in their quest for ultimate control (especially in California). Now, we have bars (anathema), entire airports, public beaches, and even wide-open parks where you cannot light up. My son lives in a large community where an ordinance totally prohibits smoking anywhere within its boundaries, inside and out. (Will the barbeque be next?)

Similarly, as a nation, we have made extraordinary efforts to lessen our dependence on gasoline (oil). We’ve mandated, incentivized, supported innovation, gave privileged driving lanes, and begged every driver to control his or her car efficiently.

We’ve made important strides toward the 40-plus mpg goal for 2015, practically doubling fuel economy.

Now, the Obama Administration has called for a new, higher bar of 54.5 mpg by 2015. Originally, the automotive companies embraced the idea, but a certain realism seems to be setting in to balk or revise the goal.

The National Automobile Dealers Association (NADA) is taking a more cautious and realistic view. While the Obama people estimate that meeting this goal will add $3,000 to $3,200 to meet the CAFE mandate, some are challenging the number.

Placing it in perspective, AutoNation, the largest dealer chain, reports that its average car sale price increased $1,185 over a year ago. Some makers have recorded systemic rate increases, which were instituted four or five times during the year. No matter what your fleet incentive is, you’re going to feel it.

Steve Wade, NADA’s past president said, “The proposed CAFE rule requires a leap of faith, a sort of build-it-and-they-will-come approach, which may work in the movies but not in real life. We know firsthand that, for the overwhelming majority of Americans, fuel economy is not a major factor when deciding what car to buy. Price matters most.”

NADA’s new study shows that the costs to achieve the higher fuel-economy level will be 60-percent higher than the federal government’s projections. This would elevate the initial car cost by an additional $5,000.

Bill Underriner, NADA’s new chairman said, “I think that’s going to be very detrimental to our business if we cannot supply the public with the cars that they want to buy…”

Now, regulators in the state of California have approved a new rule mandating 15.4 percent of new vehicles sold in the state to be electric, fuel-cell, or plug-in hybrid vehicles by 2025. If followed, it could translate into about 1.5 million new vehicles to be sold in the state by 2025.

With about 2 percent now being sold nationwide, we need to ask ourselves if the majority of the buying public will show up to buy the huge increase.

It also calls the question as to how much higher the acquisition cost will be, if we’ll have happy drivers, and if corporate America will fall into line.

You might want your CFO and boss to know what to expect before he or she starts seeing the future invoices.