Why, Even Some Automakers Support it!

by Don Boudreaux on August 14, 2011

in Competition, Crony Capitalism, Hubris and humility, Man of System, Myths and Fallacies, Other People's Money, Reality Is Not Optional, Regulation

Here’s a letter to the Boston Globe:

Contra Jeff Jacoby, Berl Hartman believes that the new government-imposed fuel-economy standard of 54.5 mpg is realistic because “many leading carmakers … endorsed the new standards.  Chrysler said it could use ‘plain-vanilla technology’ to meet the new standards, and all agreed that technology already in the pipeline could suffice” (Letters, Aug. 14).

Before rejecting Mr. Jacoby’s argument, Mr. Hartman should ask why some “leading carmakers” endorse this mandate.  If such a magnificent increase in fuel economy is easily and cost-effectively achieved, government no more has to force automakers to offer it than government has to force automakers to offer air-conditioning, cup holders, and other amenities that consumers willingly buy.

Perhaps this ‘endorsement’ is simply the simpering “yes, massa” of corporate executives now servile to leviathan.

Or maybe this support reflects some automakers’ realization that satisfying this mandate will be more costly for their competitors than for them – and, hence, that the mandate will increase the market power of these supportive automakers by differentially burdening, and perhaps even bankrupting, some of their rivals.

Either way, the very statement from Chrysler that Mr. Hartman finds so reassuring should plant in him deep suspicion of Chrysler’s motives.

Sincerely,
Donald J. Boudreaux

Be Sociable, Share!

Comments

comments

71 comments    Share Share    Print    Email

{ 71 comments }

Kevin L August 14, 2011 at 1:39 pm

I commented over at Reason that I believe one of two things is going on: either the automakers know this is possible and Obama wants the government to have the credit, or they are going to game the numbers even more so that EPA “estimates” are even further out of line with reality (honestly, how often do you get the EPA mileage out of your car?)

Either way, the government looks good and car makers probably get more assurances of subsidies, bailouts, and protection from competition.

Chucklehead August 14, 2011 at 9:59 pm

Consider that Chrysler is actually Fiat, and Fiat didn’t just get Chrysler for free, it was actually paid to take it over. Cars such as the Fiat 500 and some Alpha Romeos can meet these standards, and only need to be renamed. The Dodge ram truck and Chrysler minivan are dying, so eliminating them is no great disadvantage. Ford , with a thriving truck business will have a harder time. But it’s the European rivals such as BMW and Mercedes that will have the hardest time meeting these standards. They will have to use more expensive diesel technology to meet these standards.

Robert Kwasny August 14, 2011 at 1:57 pm

It could also be that 54.5 mpg is not such a big challenge given current technology, and so carmakers prefer this not-so-bad requirement to one that could potentially be much more severe. Now they can proudly announce that they meet government standards and care about environment without having to adjust their cars in a drastic way.

vidyohs August 14, 2011 at 3:50 pm

Addressing strictly the practicality of the 54.5 mpg goal, I firmly believe it is possible because in 1975 I was driving a Spainish Seat 600D with an aluminum block4 cylinder engine that gave me 45 mpg, seated my family of 5 with no real problem, and would do 70 to 80 mph down the highway all day long. Yet it was about the same size as the original VW Beetle. So, yes it can be done, but what will the resultant vehicle look like and will it be practical for a wide range of users.

Anotherphil August 15, 2011 at 8:37 am

In 1975, you didn’t have exhaust restricting catalytic converters, power everything (adds weight and requires a bigger alternator/battery), crumple zone designs, airbags, etc. Try getting a federal certification for emissions/safety for that vehicle today.

My uncle was a mechanic (Ford) and frequently commented how cafe and emissions standards made for engineering choices that made for less reliable vehicles. A perfect example is stampted on disk brakes-where the rotor is placed on an aluminum hub rather than being cut from a single piece of steel. They warp easy. You think you need brake rotors, but some folks know that its because your pressed-ons save a few pounds each, thus reducing fuel consumption.

Everything has a cost, even if its obscured.

THE FIRST thing that should be required to meet these targets (lead by example) are presidential Escalades

Jaye Bass August 15, 2011 at 9:54 am

The best brakes have the rotor disc BOLTED to the rotor hat. Bad example.

Anotherphil August 15, 2011 at 1:36 pm

I didn’t address bolted on rotors. Back then the choice was solid or pressed on-the pressed on were developed to shave a few pounds off each wheel, since weight is the principal enemy of fuel economy. The point was that there WAS a dimunition in quality IMPOSED on us.

In my youthful exuberance, I found this out the hard way braking from a brisk speed when the radar detector went off and the heat warped the rotors because aluminum is less tolerant of heat,

vidyohs August 15, 2011 at 11:00 am

In case you feel you are debating me, read my last sentence again. Thank you.

In 1997 my bride and I bought a new Plymouth Breeze, 4 cylinder Mitsubishi engine, that at 50MPH with no A/C running, on the freeway, it did 44MPG. In regular city driving it gave an average of 36MPG, with the A/C going.

Now in 1975 what I was driving shared the same basic characteristics as any American car.

The point is that taking the American auto industry’s word for anything regarding quality of their vehicles is typically a huge mistake. They will lie.

In 1975 there was a fuel shortage in America, gas lines, and all the resultant halabaloo. Government was pressing the American auto industry for more fuel efficient autos, and the American Auto industry was pushing back and saying it was impossible to make an auto that got more than 22MPG……..as I was driving my SEAT 600D (which by the way is actually the Spanish licensed version of the Italian FIAT) which gave me the 45MPG of which I spoke above, and at speeds well over 60MPH, in the flats or in the mountains, loaded with passengers and camping gear or just running around the Rota area.

How difficult would have been for one of the big three to license the right to build the FIAT or SEAT and start producing fuel efficient vehicles within a short period? It would only have been embarrassing, not impossible.

Technology has made tremendous strides since then, so is 54.5MPG impossible to do today?

I close with saying the last sentence of my above is appropriate here.

Anotherphil August 15, 2011 at 1:31 pm

Technology has made tremendous strides since then, so is 54.5MPG impossible to do today?

It may be possible, but it’s not practical TODAY because it requires other tradeoffs and as for tomorrow, it certainly won’t come about because of federal fiat.

vidyohs August 15, 2011 at 1:54 pm

Whether it is practical or not will answer itself in time.

I definitely agree with you regarding federal fiat.

Darren August 14, 2011 at 6:03 pm

I expect there will be a lot of ‘tweaks’ to the law and many exceptions made.

Dan J August 14, 2011 at 6:16 pm

I expect exceptions, exemptions, subsidies, etc.,… Were used as bribery to gain support. In fact, I do not question whether this is part of the deal. The govt is corrupt and the Obama admin is at the top of the heap of filth.

Chaim Gordon August 14, 2011 at 2:06 pm

Another suggestion: Even if this mandate does not advantage one automaker over another, this mandate will cause cars to be more expensive for consumers. The automakers like this because they make more money when they sell more expensive cars than when they sell cheaper cars. Because demand for cars is relatively inelastic, automakers are not worried that higher car prices will significantly reduce demand. Consumers, however, are hurt because they can no longer choose to drive cheaper, less-efficient cars.

tdp August 14, 2011 at 2:40 pm

So the car companies are colluding with the government to rake in the cash while masquerading as “environmentally friendly”. Never mind that without a mandate 54.5 mpg would be the norm within decades and prices would drop quickly.

Kirby August 14, 2011 at 3:10 pm

Demand for cars is extremely elastic in one sense: The cheaper the car, generally the sooner you need a new one.

Pete August 14, 2011 at 3:26 pm

Chaim, that doesn’t explain why the automakers haven’t already begun making more expensive cars. If despite the increased costs, high-efficiency vehicles yielded higher profit, automakers would gladly sell such vehicles.

Chaim Gordon August 14, 2011 at 3:33 pm

Pete, without government intervention or anti-trust-violating collusion, consumers will simply buy the cheaper cars that some automakers will still make. Only by imposing a government mandate can automakers force consumers to buy their more expensive products.

brian125 August 14, 2011 at 2:29 pm

I agree – I think this is Washington creating it’s own win ….

Greg Webb August 14, 2011 at 2:45 pm

Chrysler shows that it is a crony capitalist by accepting a bailout from the federal government and now obediently agrees with government-imposed fuel economy standards. Chrysler failed because it did not serve consumers and shows that it depends on the federal government for survival from competition by agreeing to meet government demands and not consumer demand. Chrysler should have been allowed to fail to get the political cronies out of executive management so that the means of production could have been bought by someone interested in making automobiles that consumers actually want.

Kirby August 14, 2011 at 3:10 pm

definitely. However, Chrysler really took a hit, government support or no.

nailheadtom August 14, 2011 at 3:11 pm

Obviously, what “consumers actually want” isn’t the issue here or they’d be able to purchase a SEAT, Skoda or Citroen, if they so desired.

Greg Webb August 14, 2011 at 3:19 pm

Tom, regulations designed to protect the US automakers’ oligopoly keep Citroen and Skoda out to the United States as their automobiles are sold in the Americas, but not directly in the United States. But, I bet you can buy one and have it shipped to the US…if you can get it past customs and US laws and regulations limiting competition in the US to benefit crony capitalists like GM and Chrysler.

nailheadtom August 14, 2011 at 10:11 pm

Isn’t that how US consumers get cocaine?

Greg Webb August 14, 2011 at 10:19 pm

Tom, it is an unusual night. I must not be drinking enough. Yours is the second question that I got that I am not sure I understand. But, to attempt to answer your question, cocaine is an illegal narcotic that you cannot bring into the country. But, the laws making it more expensive for Citroen and Skoda to do business in the US so that they sell their cars in Argentina but not the US can make it difficult, but not impossible, to buy and have shipped here. To sum up, importing cocaine is illegal. But, importing a Citroen or a Skoda is expensive but not impossible.

Chucklehead August 14, 2011 at 10:01 pm

What is a SEAT?

Ron H August 15, 2011 at 3:29 am

Well, it’s one of the most important parts of any car, as it allows you to travel in relative comfort , but more importantly it positions you above the floor so you can see out of the windshield. Without it, you would be constantly bumping into things as you drove from place to place, due to your inability to see where you were going.

Joe Cushing August 15, 2011 at 7:45 am

Ever hear of google?

EDG reppin' LBC August 15, 2011 at 1:32 pm

Hey Greg,
When you say get the political cronies out of executive management, you forgot to mention the other (and probably more influential) party to this arrangement: the UAW. I’m not a fan of crony capitalists, but if Chrysler had gone bankrupt in 2008, most of the executives would have been able to find new jobs at different companies. But if all those union jobs had gone poof in 2008… Let’s just say, there aren’t many places high school graduates can make $23.00/ hour for bolting on the same brake pad for 8 hours a day.

Dan J August 15, 2011 at 9:11 pm

Not right away, no. But, another automaker would fill the void of cars not being built and sold. Ford would expand to meet the void created as Chysler went ‘poof’. This expansion would need jobs. And if the UAW were really advocates for their members, they would see to have unemployed members hired first an he new openings.

Greg Webb August 15, 2011 at 9:57 pm

EDG, that”s why no one should invest in a career that is dependent on political favoritism. I doubt that a lot of Chrysler executives or employees would have made the same at their new jobs as what they were making with Chrysler. They should thank the taxpayers for paying their above value salaries, then get back to work or retrain for a better job in an industry thar provides goods and services that consumers actually want and are willing to pay for without subsidies.

Jim August 14, 2011 at 3:42 pm

My first reaction is that car makers will manufacture lighter, more dangerous vehicles to help advancing technology meet the mandate.

ArrowSmith August 14, 2011 at 4:55 pm

Imagine sharing the road with giant semis driving tin cans. Oh wait, it’s already carnage out there! We should really require semi trucks to drive on separate freeways and use more rail transport for cargo.

Darren August 14, 2011 at 6:07 pm

The government should mandate flying cars. That way much more space is opened up to vehicle traffic, so fewer collisions.

dean August 14, 2011 at 10:25 pm

It isn’t the carnage you would think it is. Here in Aus our semi trailers are larger than those in the US, and we have much smaller cars than those in the US. I was always amazed at how large a F100 truck was on our roads, but after living in the states for a year, how small that F100 was in the US.

Also smaller cars are required to meet the same safety standards, and SUV’s mostly have poorer safety performance than cars, especially those which are glorified commerical vehicles.

And personally, i like to drive, and I will always chose a small responsive, nimble car every time over a lumbering tank!!

As always, you need to take care on the road regardless of what you drive.

Jameson August 14, 2011 at 9:52 pm

Making cars lighter might be a good way of making them more fuel efficient. If it weren’t for government safety regulations, those of us who were comfortable with taking the extra risk might be willing to buy a lighter but more fuel efficient vehicle. Instead, what we have is an additional fuel efficiency regulation on top of safety regulations which already exist. My guess is the cars simply get more expensive.

ArrowSmith August 14, 2011 at 4:54 pm

The answer is nobody wants a Geo Metro if they can afford better. MPG is not the first consideration for everyone.

Ken August 14, 2011 at 10:08 pm

And even for those for whom it is their first consideration, it certainly isn’t the only one.

Regards,
Ken

Paul August 14, 2011 at 6:29 pm

These letters come out like clockwork, is Don Boudreaux paid to write them? I know when I’m on vacation in Vegas writing LTTE’s is at the top of my to-do list.

Don Boudreaux August 14, 2011 at 7:02 pm

Answer to your question: no; I’m not paid to write them

SheetWise August 14, 2011 at 7:13 pm

Has anyone offered to pay you not to write them?

Do these payments represent a significant portion of your income?

Kirby August 14, 2011 at 7:18 pm

In order to increase the value of other intellectual property blogs?

Anotherphil August 15, 2011 at 8:39 am

Has anybody offered to pay you not to post here?

SheetWise August 16, 2011 at 10:47 am

You can start the bidding.

Ken August 14, 2011 at 10:10 pm

Paul,

If while “in Vegas writing LTTE’s is at the top of my to-do list”, why would you be surprised that someone would make time to write them?

Regards,
Ken

Dan J August 14, 2011 at 6:31 pm

I doubt a Metro would have ever been built if not for govt mandates. It’s a throw away car. From what .I understand it is built simply to meet CAFE standards and that sales of other vehicles are priced to subsidize cars like the Geo.

Greg Webb August 14, 2011 at 7:32 pm

That is so stupid. But, that’s what happens when the government intervenes to deny consumers their choice.

Dan J August 15, 2011 at 12:19 am

Please clarify ‘that is so stupid’. CAFE standards are not based on avg mpg of cars sold, but what is built. Often the quoted mpg of a vehicle is inflated by using best case scenario. Chevy Volt, which has abysmal sales, had it’s mpg rated in best case scenario. Twas not based on wintery conditions with heat on, radio playing, etc.,… Nor did the mpg calculate hundred degree plus with air conditioning blasting like in the southern states. We all know that batteries have a limited lifespan. In extreme heat, like Phoenix or San Antonio, battery life is diminished.
But, we get govt interventionism attempting to manipulate behaviors but distorting the market and playing numbers games. These distortions, as we know, do little but make consumers pay more for a product that is partially what consumers want but subsidizing products we don’t want. Nutty third parties, who don’t buy the products, have their egos stroked as resources, time, and money is wasted.

Greg Webb August 15, 2011 at 12:31 am

Dan J, it is so stupid that the government intervenes and distorts markets, which drives up the cost for the cars that consumers really want.

Dan J August 15, 2011 at 12:52 am

It’s stupid that more of the citizenry did not recognize the problems with govt interventions. It is not stupid for those who engage in this activity. The players are all getting wahtthey want. Consumers are the losers.
Side note….. CATO Institute highlighted and recognized a Guatemalan university that teaches free market principles. Gives me more hope for the future.

Gil August 15, 2011 at 1:18 am

Yeah supercars! Vroom! Vroom!

Greg Webb August 15, 2011 at 8:59 am

I love my Porsche Cayman S!

Dan J August 15, 2011 at 9:12 pm

Good for you Mr. Webb! Good for you.

bob August 14, 2011 at 8:02 pm

I work for an engine manufacturer. My company likes to brag internally about how great the fuel efficiency standards are for it because it has better technology. My company has broken from the industry lobby and lobbied for stricter standards. During the last round of emissions increases, one of our competitors went out of business. It sickens me that we take the path of Jim Taggart rather than the path of Hank Rearden to “grow” our business.

Gil August 15, 2011 at 1:20 am

Golly gosh! The Industrial Revolution wouldn’t have happened by today’s standards and people would still be stuck on the family farms.

Dan J August 15, 2011 at 1:29 am

Stuck on farms!! I would say we are being herded into cities and getting stuck in those cities.

Dan J August 15, 2011 at 12:23 am

Use of govt authority to gain an advantage and put competition to rest. Boy, we need more of that.

Joe Cushing August 15, 2011 at 7:36 am

Don’t forget that it makes little difference, to the automaker, what the standard is. It’s only the consumer that has limited choices. Sense all the automakers have to follow the same standard, consumers will be forced to buy cars they don’t want but they will still by buying cars. If you are making cars people don’t want but the people don’t have the choice of getting what they do want, you still make money. So it doesn’t matter to you.

FreddyB August 15, 2011 at 8:16 am

I really think if the reduction of CO2 emissions is a priority for society they should just use a carbon tax. Higher fuel economy standards do nothing to encourage better loading, fewer trips, better maintenance, etc.

Liberty is over August 15, 2011 at 8:21 am

None of this would end with Republican control of Congress. It would slow down a little; that’s about it. The radical czars would go, but not the departments that they run. The Republicans wouldn’t even fire Elizabeth Warren.

Prole August 15, 2011 at 8:22 am

Is it a bit ironic that many cars do exist that get 60+ mpg, but the EPA will not allow them to be sold in this country?

Liberty is over August 15, 2011 at 8:32 am

The State has effectively replaced the Church. During the centuries long transition, we had a few sneak peaks of liberty. We’re all sheep, to be stamped and registered. All our assets will be tracked and it’s just a matter of time before the State will go after gold. They will tax your holdings. They will say that it is hurting the economy to hold gold. It is already illegal to use gold as money, so don’t be surprised when they decide to tax it, or at a minimum, regulate it.

Prole August 15, 2011 at 9:31 am

Next step is a wealth tax.
Once all the wealth that was created during the brief Time of Liberty is redistributed and wasted, humanity will return to its default state of poverty.

John Dewey August 15, 2011 at 10:18 am

Is it possible that Chrysler executives are so clueless they do not realize that when they must inevitably raise prices, demand for vehicles will drop? Is it possible they do not realize that for a decade or more, consumers will keep repairing their heavier, desired vehicles rather than buying the newer, mandated ones?

Liberty is over August 15, 2011 at 10:23 am

They’re not clueless. The automakers are now public utilities with built in profits. Demand will be subsidized.

Liberty is over August 15, 2011 at 10:19 am

I think a wealth tax would require a Constitutional amendment, but they might try to end run it. Maybe they would tax capital gains that haven’t been realized, and for certain targeted commodities such as gold, they would use an ordinary income rate, under the excuse that there must be some sort of penalty against “speculators”. This sells well to the public. Even the talking pinheads such as Bill O’Reilly would back a confiscatory tax on speculators, as evidenced by his yearly rants about the price of oil.

Prole August 15, 2011 at 11:06 am

When the government starts means testing for entitlements, and people become comfortable reporting all their assets to the government, those assets will soon be subject to taxation.

Dan J August 15, 2011 at 9:19 pm

Buy gold….. Then, kick in a door of your house or a screen that needs replacing and report it gone. Or theft from your car.
Be sure you do not have insurance for break ins. Make no claim, reinstate theft insurance.

Michael August 15, 2011 at 10:21 am

Those at leading care manufacturers endorsing the new rules aren’t the ones building the cars.

Engineers are skeptical they can meet the goals.

http://www.autoblog.com/2011/08/02/auto-engineers-skeptical-of-meeting-2025-cafe-targets/

bob August 15, 2011 at 11:53 am

Another politically-driven move is that our emissions laws are slanted against cleaner and more efficient diesel-fueled engines. Why? Because the American automakers, and as an extension their union, are not good at making diesels engines, compared to European companies. So, through our emissions regulations, we slant the playing field somewhat toward cars with American-manufactured gasoline engines.

TallDave August 15, 2011 at 4:17 pm

It’s worse than he says. These mandates essentially create built-in profit centers.

Thus does the grand marriage of corporatism and environmentalism bear children to the welfare state…

John Donnelly August 15, 2011 at 5:09 pm

For a great discussion of this very topic by excellent economist Ed Dolan (Yale Phd) read here:

http://dolanecon.blogspot.com/2011/07/is-562-mpg-fuel-economy-standard-really.html

Previous post:

Next post: