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Rant: Close CAFE and let Detroit build cars people want to buy
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One of the sorriest tropes of the current Big Automobile financial crisis is that Detroit hasn’t built cars that people want to drive. Really? Even during the high gas prices the number one and number two vehicles models were famously the Ford F-150 and the Chevrolet Silverado, both trucks, as was the number seven, the Dodge Ram pickup.
Yet there are activists who want “green” cars variously defined as a requirement for any aid to Detroit. Now’s the time, they say, to hold Detroit’s feet to the fire and make them build cars that The People want.
Just who are The People the activists want Detroit to build cars for? They’re not the pickup truck buyers. And they’re not Mercedes-Benz, Volvo or BMW customers. Daimler, who builds Mercedes-Benz automobiles, paid $55 million in CAFE—Corporate Average Fuel Economy—fines last year. BMW ponied up $230 million and Volvo $56 million. It’s not a penalty for those companies as much as a cost of business. They are—other than Volvo—making money.
Volvo is owned by Ford, of, and paying the fine so that Volvo’s customers (surely part of some “people”) can buy the cars they want is bad for Ford Motor Company’s bottom line and one of the reasons Ford would sell its Swedish subsidiary if it could find a buyer willing to pay a reasonable—or perhaps even any—price. Take my Swede…please.
Of course Volvo is hurt more by the kroner/dollar relationship than the CAFE fine, and Mercedes and BMW insulate themselves somewhat from the strong euro by building cars in the U.S. (even exporting cars they build here), but Mercedes is hardly hurt by a fine of $118 per car, as the Wall Street Journal points out. It’s doubtful that a gas guzzler tax of $1,300 on the Mercedes-Benz CL550 coupe has had any effect on the model’s sales.
Detroit too could ignore CAFE, adding the cost of the CAFE fines to the cars that cause them, but the public relations blowback would be enormous, so as long as CAFE exists, Ford, General Motors and Chrysler will be at stool one, two and three, regardless of the cost and regardless of the heartburn.
When the original CAFE standards were enacted in the Seventies, it had the effect of driving production of Detroit’s larger, more profitable models out of the country, particularly Mexico, so that the big cars wouldn’t—as imports—be included in their domestically-produced corporate average. That’s a result of what’s called the Law of Unintended Consequences.
By saddling Detroit with the distraction of new CAFE standards, Washington diverts the carmakers’ resources to meeting short-term regulation-satisfying tasks. And by denying car manufacturers permission to build vehicles that make the most profit limits the resources they have for research and development of new and advanced technology and features.
The same politicians who gave you the sub-prime loan-precipitated financial mess that has reverberated around the world are now tinkering with the auto industry like never before. Today’s more stringent CAFE standards couldn’t have been introduced at worse time. It’s time to shut down that CAFE and give Detroit the flexibility it needs to build cars that people actually want to buy, rather than those The People think they should.
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