Question of the Day: Should Washington Repeal CAFE?
While not a new argument, Wall Street Journal columnist Holman Jenkins recently published an interesting editorial suggesting that federal Corporate Average Fuel Economy (CAFE) legislation is keeping American automakers from being competitive. Rather than dish out $50 billion in loans, he contends, Washington should repeal CAFE.
Jenkins suggests that CAFE legislation has not only been ineffective in curbing America’s appetite for fuels, (“Look at gallons consumed, miles driven, barrels imported or emissions emitted: CAFE has had no significant impact on energy consumption”), it has disproportionately hurt Detroit automakers because the cost to comply with standards has come on top of legacy costs and union wage rates that are markedly higher than foreign competitors. The net result has been that in order to be priced competitively against Asian companies, GM, Ford, and Chrysler have had to produce less costly, inferior automobiles.
Jenkins further argues that investments in fuel-saving technologies would still have moved forward without CAFE—provided it was profitable for automakers to do so. By instead taxing gasoline more heavily, a climate would be created whereby consumers would make fuel economy a priority (similar to what has been happening in recent months), making investing a cost-efficient proposition for automakers.
Is Jenkins right? Should CAFE be repealed in favor of gas taxation? Are the fortunes of Detroit’s automakers too far gone to make a policy about-face a viable solution?
Click on the link below to read Jenkins’ editorial, and then leave us your thoughts in ‘Comments.’
+ The Wall Street Journal: How to Save Detroit And $50 Billion
Comments
Trinks
Logically he's right. But good luck selling politicians, let alone the public, on the idea that "you need to spend more on fuel for the good of the nation." That may be too simplistic, but it's what people would hear.
chartguy
No, what you sell is the idea that with gas prices high, people will buy fuel-efficient vehicles anyway. CAFE is quite simply a tax on US automakers. Who knows what Congress will support, but CAFE has NEVER made sense.
Ducati Minor
CAFE is a poor choice--higher gas is smarter, but unlikely in our car-driven society.
TheStig
chartguy got it right. Looks at the automotive sales environment now and look at what people are buying. The already-high gas prices have taken car of the problem another way. CAFE never made sense anyway because to meet the standard, many times the automakers had to make smaller cars to sell to offset the SUV's and trucks that were bought. And oftentimes, those small car sales at best made no money for the manufacturer, and at worse were sold at a loss just to meet this standard. If CAFE never existed (I'll use Ford as an example here) they would be free to build exactly to market demands (at one time it was SUV's and pick-em-up trucks) and put all of their engineering and manufacturing resources into making a truly world class product. In that case they would have the resources freed up from building cars that didn't make money for them to focus on their core product, into which they could have built more efficiency and so on.
So, to answer the question, yes - the govt should just drop CAFE and let the market sort things out for itself.
B.I. Gummint
We voters have to trust our elected officials to do the right thing and protect us from the bed-sharing oil and automobile manufacturers. Without CAFE, then the auto manufacturers will operate in cahoots with big oil and only make gas guzzling SUVs. Poor people will get even poorer as they'll have no choice but to drive to work and give all their hard-earned money to Filthy Nasty Exxon (Bird killers!).
Okay, I'm lying. I just had to toss up some sort of straw man argument since all of you agree, and frankly, I agree with you.
Russ Bellinis
CAFE standards have never made any sense what ever. People will buy the vehicle that they want and all CAFE standards accomplish is to make another hoop for the manufacturers to have to jump through. Nobody forced the automakers to build large SUV's, the market demanded them. Nobody is forcing the manufacturers to make more fuel efficient cars, the cost of gas is doing what CAFE standards completely failed to accomplish. If someone wants a gas guzzler, paying a few hundred or even a couple thousand $ extra for the vehicle was just a part of the cost of buying what the public demanded. The only way to force people into more fuel efficient vehicles is to raise the cost of gas to the point that it starts making sense to buy an economy car. As far as trusting elected officials, I think the crooks far outnumber the good guys. I'm sure most are in the "pockets" of special interests. If we need to conserve energy, we need a gas tax that encourages fuel economy; but we won't see it because politicians are gutless!
Anonymous
I bet I'll get in trouble if I get too specific, so I'll just say I blame Congress and the '70s "I like plaid" think . . .
JSH
If we really want to break the nations “addiction to oil” I think that we need CAFÉ in conjunction with a higher fuel tax. That won’t happen so CAFÉ is the best we can do.
CAFÉ is a good policy but has not been implemented well. CAFÉ resulted in the doubling of fuel economy from the mid 70’s to the mid 80’s. It brought unibody cars and fuel injection into the mainstream. Then for 20 years we did nothing even though the CAFÉ law required congress to set CAFÉ to what even level is technically achievable. If CAFÉ would have been consistently increased we would be in a much better position today.
CAFÉ also created the boom in trucks and SUV’s for personal transportation. Again this was due to poor execution of CAFÉ by allowing the truck loophole. By the late 80’s if you wanted a large V8 RWD vehicle you just bought a truck instead of a sedan. If you wanted a large V8 RWD wagon you bought a SUV instead of a station wagon.
A large and consistently increasing fuel tax would have the same effect as CAFÉ but isn’t politically acceptable at this time because since Jimmy Carter politicians have afraid to speak the truth about energy security to the American public. No politician today is willing to tell Americans that our future prosperity depends on conservation and new technology or that our lives in 15 to 25 years will be very different than today. Until the people agree that a change in policy is required you will not have support for an increase in fuel cost. Even today the current presidential campaign is not focused on energy independence it is focused on lowering the cost of fuel.
So instead of focusing policy on the individual we remove it a step and place the burden on a corporation. Senator Obama talks about increasing taxes on oil companies and reducing their subsidies. This increase in production cost will be passed on the consumer as higher prices. The effect is the same as directly taxing the citizen for use of fuel but the politician can blame the oil company for the higher price instead of directly taking the blame (or credit).
Anonymous
OH POPPYCOCK! The foreign car manufacturers are subject to exactly these regulations and they meet it, or pay the fines yet and still they bring quality vehicles to market that are fuel efficient. It is the American mindset that bigger is better that has created this problem and the manufacturers have fed this all along.
FROM NHTSA web site: "Since 1983, manufacturers have paid more than $500 million in civil penalties. Most European manufacturers regularly pay CAFE civil penalties ranging from less than $1 million to more than $20 million annually. Asian and domestic manufacturers have never paid a civil penalty. "
Read that last part: domestic manufacturers have NEVER paid a civil penalty. Therefore CAFE has no bearing on the quality of American cars produced - just face the facts: American manufacturers can NOT make a quality car. Saab for example - once GM took them over their build quality has declined dramatically.
As long as America had cheap gas there was no incentive for them to make efficient cars, because Americans did not care. In Asia and Europe where gasoline has historically been 2 to 3 times as expensive, it was a must. Take for example the 1.8l turbo engine in most Volkswagens and Audis, or even the 2l turbo of Saab, or even Mitsubishi or Subaru - these engines produced lots of horsepower, great torque AND had excellent fuel efficiency - even when compared to bigger 6 and 8 cylinder cars that Americans preferred. Not only that, for the most part they dismissed the cars these engines came in as being quirky or too small or some other contrived reason.
When I bought my Audi RS4, I had to pay a gas-guzzler tax because of its supposed inefficiency, yet this car gets way better mileage than any SUV out there. Oh and by the way, SUVs are exempt from this gas-guzzler tax, so saying the American manufacturers had to make smaller, inferior cars to offset this imbalance is nonsense. They made huge, inefficient vehicles to meet American demand and made HUGE profits off of them. Look at the employee pricing versus everyday pricing of any current GM vehicle and see the percent markup/markdown for an SUV is as much as 25%/20% as opposed to 7-10% for any of their cars - even the Cadillacs.
Still think CAFE has anything to do with the crap American manufacturers make?
Newguy
EVERYTHING that the government attempts to do is not thought out well enough. As stated, the CAFE regulation simply took the large station wagon (a profit leader for Ford) and turned it into a SUV (a profit leader for Ford). It also forced manufacturers to sell cars that nobody wanted to bring down the "fleet average" (e.g. Geo Metro and the like). Since these small cars were lost leaders, not development went into them.
Now, the unintended consequence of this is that now that the gas prices have jumped, the manufacturers that spent their production and engineering on trucks and SUVs are screwed. Look at GM with their small block. If they can get a (heavly modified)7.0L truck engine to over 25 mpg in a Corvette, what could they do with a Malibu and a 3.5L V6 with the same engineering time and budget? This is why Honda is kicking GM, Ford, Chrysler, Nissan, and even Toyota butt. Honda built a real SUV or truck, so their engineering can be applied to smaller cars too.
The best short term solution to all of the problems is to allow European diesels in America with minimal modifications. This would really help Ford and GM that have great small diesel cars in Europe. It wouldn't help Chrysler. However, other than paying for 1/2 of American's gas bill, nothing is going to help Chrysler.
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