Obama’s Misguided Fuel Efficiency Policy

Today, President Obama announced his goal to increase fuel efficiency standards in our cars to an average of 35.5 gallons by 2016.  What he didn’t say is that he is going to keep using the horrible and unfair CAFE fuel efficiency standards and how this is going to absolutely kill the American automakers.  His policies are straight out of a “Politics 101” textbook.  They are so naive and idealistic and he does not realize that there are unintended consequences of his policies.

I’m not an expert on fuel efficiency and the auto industry, but a quick search on wikipedia for “CAFE Fuel Standards” was all I needed.  A little research showed me how the rules and regulations are broken.  Instead of addressing the root of the problem with our auto industry and efficiency standards, our President just reaches for pie in the sky goals with no regard for the blowback of his actions.

As I wrote before, the problem with the Corporate Average Fuel Efficiency (CAFE) standards is that they measure the harmonic mean of all the cars sold domestically by automakers.  Since the domestic automakers sell mostly trucks, they then have to sell – not just produce – an equal amount of crappy, fuel efficient cars that no one wants to buy in order to meet the standard.  They end up having to sell these at huge discounts or even at a loss to rental car agencies.  The Big Three lose money on every compact car they make because of labor and union costs, but make money on every truck and SUV they sell.  The importers from Asia and Europe sell mostly compact cars, so they are at an advantage.  They build these cars using the same US labor, but they are not burdened with the labor costs the US automakers are strapped with.   They can meet the fuel standards and be profitable at the same time.

On a side note, we know that US labor costs are not going to go down either.   The United Auto Workers are now majority owners in Chrysler, and will probably come out the same with GM.  With a partnership of labor and the government running the company, how can we expect labor costs to decrease?  Instead, they will continue to increase, and the taxpayers will keep giving them more money to prop them up.

But back to fuel efficiency.  I believe that we need more efficient cars, and we are already on our way there.  Hybrids are all the rage, and the automakers can’t keep up with the demand.  But are hybrids really green?  Massive amounts of energy go into producing the electric batteries they use.  I won’t get into that debate here, but the consumer demand for more efficient cars is very, very strong.

Why not just let the consumer and the market dictate fuel efficiency?  Why do we need laws created by bureaucrats to overregulate the industry?  Look at how competitive and innovative trucks have become in the last year or so.  As gas prices skyrocketed, consumers wanted fuel efficiency.  Toyota came out marketing their Tundra aggressively, and Ford, Chevy and Dodge responded.  All of the commercials touting features and miles per gallon were a testament that the market works and if consumers demand something, the automakers will listen.  It was capitalism and the free markets at their finest!

But why punish our auto industry for making the best trucks?  Even if they get a truck that can average 30 MPG by 2016, they will have sell an equal amount of compact cars that average 40 MPG to meet the tougher standard.  Or, if they can only get 25 MPG out of the truck, they will have to sell even more 40 MPG compacts.  The smaller cars are money losers for the US auto makers, so we are forcing them to make an unprofitable product.  What kind of business can succeed with that kind of regulation placed on them?

If we were to measure anything, we should measure how much progress is being made by a manufacturer for that particular make and model.  If the auto makers make a truck 250% more efficient than last year’s model, they should be rewarded.  If they can’t make money producing small compact cars, don’t force them to make them.  Let the imports fill that market and let the US automakers focus on making their breadwinners, the trucks and SUVs better.

The bottom line is that consumers are already demanding more efficient vehicles.  Let that demand drive what is produced and sold in the US.  Don’t regulate for the sake of regulating and sign the death sentence for the US auto industry.  We need real changes in the policies of our country, not more well intentioned but horribly executed Politics 101, pipe-dream nonsense from our leaders in Washington.

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