Will Trump’s Lower Fuel Efficiency Standards Help or Hurt Your Wallet?

Yesterday, the Trump administration proposed rolling back fuel economy standards that automakers must meet. The Biden administration instituted rules requiring automakers to improve their fleet average by 2 percent per year through the 2030s. The rules weren’t really designed for automakers to make so much progress in gasoline-powered cars every year. Instead, the idea was that, combined with tax breaks for EVs, a carrot-and-stick approach would boost innovation by incentivizing the industry to move to electrification, through both hybrids and full BEVs.

That was then. Yesterday, the Trump administration introduced new EPA rules that would reduce that target from 2 percent per year to just 0.5 percent per year. Simply put, that equates to a fleet average of 50.4 miles per gallon by 2031, up to 34.5 MPG by 2031. Yesterday at the White House, Trump said:

“Under the new rules issued today by Secretary Duffy, the Department of Transportation will be rescinding the Biden fuel economy awards, and I hate to say that because they weren’t exactly economical. They were really anti-economy.” —President Donald Trump

Trump also said: “All the bullshit is being taken out of the cars.”

Parsing these statements is a challenge. So let’s do some simple math.

What is the difference between the standards?

Currently, the average EPA fuel economy for a gasoline-only Toyota RAV4 is 30 MPG (city/highway combined). Average fuel economy for the RAV4 hybrid is 39 mpg. The The RAV4 was the most popular single model sold in the US last yearwhich makes it a logical benchmark. But keep in mind that neither of these figures would meet the 50.4 MPG target of the Biden-era standards, nor does the gas-only RAV4’s 30 MPG meet the proposed Trump rules of 34.5 MPG by 2031.

What does it cost me?

The annual cost to fill up the gas RAV4 is $2,300, according to the EPA. That drops to $1,750 for the hybrid. If you calculate that over a five-year period, you’ll see a cost savings of $2,750. But for argument’s sake, the EPA says the annual “fuel cost” (when charging) of a 2026 Nissan Leaf will be $700, or $3,500 over five years. Compare that to the $11,500 to fuel it RAV4 gasoline model for half a decade, and you’re looking at a huge savings of $8,000 to drive the electric car.

This is clearly why, even with the changing policies, Toyota will offer several new electric cars next year, and although the Big Three sent representatives to the White House yesterday to applaud the new Corporate Average Fuel Economy standards, all three are still working on developing electric cars.

The real reason why cars are more expensive

Trump’s new rules are likely aimed at affordability. Unfortunately, there are three major drivers of rising new car costs that weren’t mentioned during the White House briefing: tariffs, tariffs and tariffs, all of which take different forms and together, according to Kelley Blue Book, will push the average price of a new car up nearly 4 percent this year and above $50,000.

Tariffs on cars, metal and car parts

First, the 50 percent tariffs on steel and aluminum have been cruel to automakers. There simply isn’t enough domestic metal production, and even as automakers like Hyundai Group in the US invest in machining, it will take years before this results in anything like a domestic supply bump. So the truck or car you are looking for (which is made of metal) is simply more expensive. And the bigger the car or truck, the more that rate bites.

Automatic content

Cars are made of parts. Even vehicles assembled in the US by “American” automakers use parts manufactured or machined elsewhere. The treaty negotiated between Canada and Mexico under the previous Trump administration enshrined a pan-North American “factory floor” where parts are constantly shifting across borders. The new regime has raised the price of that operational structure. Even South Korean or Japanese automakers that assemble cars in the U.S., like Honda (the leader in U.S.-assembled domestic-content cars), have to pay more for parts because of tariffs.

Speaking of which, all car parts, like those that maintain the car you drive now, are affected in some way by these rising costs. If a supplier makes some of their electronics abroad and those parts are hit with tariffs, they have to pass that on to consumers. Simply put: the result hits the wallets of the producers, and therefore also your wallet.

A history of distorted policy

Sam Fiorani, an analyst and vice president at the company AutoForecast Solutions, says an unregulated market is just as flawed as an over-regulated one. He points out that as early as the 1970s, during one of the many oil shocks when CAFE was first imposed, regulations had the effect of forcing automakers to make at least some affordable vehicles.

“High gas mileage models offset profitable low gas mileage models. While this wasn’t good for the bottom line, the unintended consequences of the regulations filled the market with low-priced models like the Ford Focus and Chevrolet Cruze.” —Sam Fiorani, vice president of AutoForecast Solutions

The new math is hurting car buyers

Fiorani said that when President Obama’s administration revised the CAFE rules, automakers could pretend that a vehicle like a Subaru Outback was a “light truck,” and so, according to Fiorani, “…manufacturers no longer had an incentive to produce small, cheap, and fuel-efficient cars.” Another analyst, Brian Finkelmeyer, Senior Director of Enterprise Insights at Cox Automotive, told me earlier this year that this forced automakers who still wanted to sell affordable sedans to make their cars in Mexico because of lower labor costs. Finkelmeyer says the distorted policy made it uneconomical for Ford, Stellantis or GM to produce cheap cars in the US. Crossovers (as ‘light trucks’) are simply more profitable.

“The reason they got rid of all their sedans is because they couldn’t make any money.” —Brian Finkelmeyer, Senior Director of Enterprise Insights at Cox Automotive

The EV mandate

The Trump administration argues that the market for EV credits (which acted as fines against automakers that couldn’t or wouldn’t sell enough EVs) distorted the incentive structure around innovation. Federal regulations released yesterday claimed that this credit market made it smarter for legacy brands to instead trade just for the credits, which would enrich EV-only manufacturers like Tesla, rather than investing in the technology themselves.

However, Fiorani argues that abolishing ambitious fuel economy standards will only hurt consumers. Because automakers won’t worry if there’s no incentive to make affordable, more fuel-efficient cars, because R&D investments are more expensive.

“Buyers are not asking for hybrids as much as manufacturers have added them because of the improved fuel economy needed to meet regulations.” —Sam Fiorani, vice president of AutoForecast Solutions

Fiorani says removing both the carrots and sticks from CAFE will put a damper on the innovation facing automakers. “As long as 15 million buyers continue to come in for $50,000 vehicles, there is no incentive to add cheaper models.”

TopSpeed’s opinion

There’s another part to all of this that car buyers should worry about. Gas may be cheap right now, but there’s no guarantee it will stay that way. First, as the rest of the world – especially China – electrifies, demand for oil will decline, and the incentive to invest in its production will also decline, causing production costs to rise. Meanwhile, the energy price in this country is rising, thanks to data centers. Fiorani points out that the US has been here before, during the last oil shocks of the 1970s, when American consumers had no choice but to buy Japanese cars that were more fuel efficient. And American automakers aren’t stupid; they compete globally. They may have politely applauded in the White House, but out of the other side of his mouth, Ford’s Jim Farley has admitted that China will win without radical change in his own company. It won’t come from Washington, but for survival that rethinking will have to come from the American auto industry.