Economics 101

The Obama administration and Congress, out to prove they are smarter than everyone else, have set a fuel economy mandate that is arbitrary and wanting of basic science.
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 Here we go again: The Obama administration and Congress, out to prove they are smarter than everyone else, have set a fuel economy mandate that is arbitrary and wanting of basic science. During the recent North American International Auto Show, the National Highway Traffic Safety Administration held public hearings that extolled the methodology of setting corporate average fuel economy standards (CAFE) at 54.5 mpg by 2025 (the fleet average today is 22 mpg).

The trouble was, no one could explain why the administration set the standard at 54.5 mpg. Why not 62.6 mpg, or 47.8 mpg? In order to reach the target mandate, the automakers will have to produce much smaller vehicles and hybrid powertrains that consumers, so far, do not favor (note the heavy federal subsidies currently offered on electric vehicles). Rather than let economics work — demand dictates supply — the federal government is determined to strongarm us into believing that it knows what’s best for the automotive industry.    

The NHTSA, in lock step with the UAW, says consumers will achieve $6,000 to $8,000 in fuel savings based on the new standards. At the same time, though, NHSTA officials admit the projected savings are based on wildly higher gasoline prices and marginal technology costs. Auto dealers say the real cost to meet the mandate, based on more conservative fuel prices and more realistic investments in technology, will be $3,500 to $5,000 per vehicle.

The OEMs aren’t in a position to argue with Washington, which extended bailouts to General Motors, Chrysler, and several suppliers in 2009. The Obama administration also threatened to allow states to individually set mileage standards, meaning the Big Three had to pick its poison. What public servants fail to recall is that the collapse of the domestic OEMs was due, in large part, to the initial enactment of CAFE standards in the 1970s.

The standards didn’t work then, and they won’t work now. The mandate four decades ago saw the automakers change their entire lineup of cars and trucks nearly overnight. They didn’t have enough designers and engineers to meet the challenge, and the resulting models proved mostly lackluster and bland.

UAW President Bob King says the 2025 mandate will create jobs as the automakers invest as much as $150 billion in new technology. The prediction rings hollow considering the thousands of members the UAW has lost in recent years. Higher sticker prices, meanwhile, lead to fewer sales, not more.

If the federal government really wanted to assist the automotive industry in producing fuel-efficient vehicles that operate in a safe environment, it should support new technology that allows for autonomous vehicles. Armed with sensors, cameras, GPS transponders, and other equipment, vehicle connectivity will lead to safer roads, less traffic, and lower health care costs.

Once all vehicles are equipped with transponders — kits will be available for older cars — the automakers can build lighter vehicles because they won’t have to factor in hundreds of pounds of sheet metal to offset human error in traffic accidents. Lighter cars lead to better fuel economy.

Good government doesn’t arise from bullying tactics. Rather, good government is the result of enlightened policy that emanates from sound logic and scientific research. db

bR.J. King

brjking@dbusiness.com 

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