The Big Three automakers are lobbying for $50 billion in loan guarantees to help them over the hump of switching from making SUV's to making Priuses. Holman W. Jenkins, Jr. writes in the Wall Street Journal that there's an easier and better solution.
The problem isn't systemic to the auto industry, but North America and mostly CAFE:
Not only did history saddle them with a UAW labor monopoly that their foreign competitors have managed to avoid. Even that might not have been fatal if Congress had not enacted its "corporate average fuel economy" rules in the 1970s. Look at gallons consumed, miles driven, barrels imported or emissions emitted. CAFE has had no significant impact on energy consumption. Its sole practical effect has been to saddle Detroit with capital costs to produce, in U.S. factories, millions of small cars designed to lose money. It must rank as the most perverse attempt at product regulation in industrial history. The Big Three were confronted with this choice: Lose lots of money by matching Toyota and Honda on quality and features, or lose less by scrimping on quality and features and discounting, discounting, discounting. And now we have a new round of CAFE rules just passed. And Detroit needs money to make it work, money it's trying to get from Uncle Sam: Having squandered the domestic auto industry's capital on millions and millions of cars that lost money, now Congress will squander the taxpayer's capital. It will lend the auto makers $50 billion to invest in fuel efficiency innovations that, by definition, won't command from car shoppers a price high enough to cover the cost of making them. Which makes it very unlikely taxpayers will get the $50 billion back. Bottom line: Fifty billion won't turn CAFE into effective policy. Of course, getting Congress to repeal CAFE is impossible. Getting them to "loan" scads of cash to Detroit is much more likely. CAFE is a miserable failure that cost Detroit billions, cost American drivers billions, and between 1975 and 1998 killed 46,000 of them outright due to smaller, lighter cars (and that data is 10 years old so extrapolating one would expect CAFE to have killed about 20,000 in the past decade). All without saving much oil. But Congress is oblivious to all of that in their desire to look green.
Agree that Detroit should not be loaned money from the public purse, and I agree that CAFE has probably been ineffective. But you are wrong (in your e-mail alert) to say that repealing the CAFE standards "will save the auto-industry from having to spend billions on new, untested technology to meet these arbitrary requirements." Safe, fuel-efficient cars are available now, and at least two of the Big Three are already manufacturing them ... in Europe. Detroit doesn't have to invent in some new technology, or license it from other manufacturers. They have it; they just need to start applying it in their plants in the USA.
As for the cars that lose money. My heart bleeds. Detroit itself created the fashion for over-sized, overblown pick-ups and SUVs. They started it behind a hefty 25% tariff wall for "light trucks" and were encouraged by other government incentives, such as lower safety and CAFE requirements, and special tax breaks for "professional" buyers (e.g., lawyers) of large vehicles. (Read "High and Mighty" by Keith Bradsher for all the details.) After a certain number were on the road, other customers begand to feel they HAD to own these behemoths to have any chance of surviving a crash with them, even though SUVs had a worse safetly record (mainly due to rolling) than mid-sized sedans. Like the arms race, the result was that everybody lost.
Posted by: RPS | September 21, 2008 at 09:58 PM