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President Obama's 35.5 mpg CAFE and the law of unintended consequences
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Someone should teach President Obama the Law of What Happens Next because his announced plan to raise the Corporate Average Fuel Economy (CAFE) to 35.5 percent by 2016 is fraught with unintended consequences. Mr. Obama apparently believes that issuing a presidential ukase will summon the miles-per-gallon fairy, but the outcome of new CAFE standard is likely to be far different than the Pollyanna expectations of the president.
History is not on the president’s side. When CAFE was originally established in 1975, it was believed that manufacturers would magically be able to produce vehicles that met the stipulated mileage. Instead, the law chased auto manufacturing out of the country, sending the production of large vehicles to Mexico in order to dilute CAFE’s impact. Oops, there went American jobs.
Further, because the original CAFE excluded heavier vehicles—it wasn’t intended to apply to commercial vehicles—it resulted in personal-use SUVs near the breakpoint to become heavier so they wouldn’t be included in that manufacturer’s CAFE calculations. A heavier vehicle, all other things being equal, means increased fuel consumption. Oops, that wasn’t what they wanted to happen.
Of course, the CAFE standards only exacerbated U.S. car makers’ problems. At a time when Americans were buying smaller imported cars—from companies whose cars were sized for the smaller roads and shorter distances of their home markets—U.S. companies had to build enough small cars to balance the larger, lower mpg cars for which they still had a profitable market. As a result, GM was forced to sell its small import fighter, the Chevrolet Chevette (a “world car” made by GM subsidiaries as the Vauxhall Chevette, Opel Kadett and Isuzu Gemini for various markets, though U.S. models were made in America) at a loss. Oops, GM’s bottom line takes a hit.
Some have even postulated that the downsizing of vehicles has had a toll in highway fatalities, although that’s hard to quantify. Still, the Insurance Institute for Highway Safety, certainly not in carmakers’ pockets, looks askance at government rules that push drivers into smaller cars.
Despite CAFE’s spotty record, however, proponents still believe that only CAFE spurred auto manufacturers into making automobiles more efficient, though the carmakers have long responded to the car buying public wanted because, well, that’s what a company is supposed to do, satisfy its customers. And even if the car buying public wanted larger vehicles, they still wanted those larger vehicles to get the best gas mileage possible for what they were.
Mr. Obama, however, blithely ignores history while making the remarkable assertion of an average vehicle cost increase of $1,300 to meet the new plans. This comes, after all, from a man who said that by all Americans properly inflating their cars’ tire pressure and getting tune-ups, our dependence on foreign oil imports would be eliminated. That, however, came when Mr. Obama was asked why we couldn’t drill for more oil in the United States or offshore. Different solutions for different audiences, one might suppose.
Naturally, Mr. Obama didn’t come up with that $1,300 figure on his own. He has experts. Yet is anyone so naïve as to believe the experts didn’t come up with as small a number as possible, and that—to paraphrase the EPA’s caveat about fuel mileage estimated—your increased cost may vary. Of course, it’s rather presumptuous on Mr. Obama’s part to spend other’s money so blithely.
Mr. Obama’s plan is likely to backfire in more ways than just cost, however.
First, consumers faced with only smaller, more expensive cars they don’t want to buy are likely to keep older, larger cars in use longer. That’s good news for repair shops and auto parts stores, but it’s bad news for a car company wanting to sell new cars. And it means that there would be no overall reduction in petroleum usage.
Second, as before, car companies whose domestic market is comprised of smaller cars are likely to benefit from Mr. Obama’s plan because they are better positioned to produce smaller cars. Toyota had a prepared statement saying the Japan-based company fully supported Mr. Obama’s plans.
Of course, so did Chrysler and General Motors. But with Mr. Obama holding the reins, he might as well have written the corporate statements himself. Ford went along, too, because one just doesn’t say the king has no clothes, especially when this particular king is accumulating official power the way he is.
Still, even if some miracle process made it possible for every car accomplish 35.5 mpg, it weould be very difficult to get it into 2016 vehicles, considering the time to get a new technology developed, engineered into various configuration, supply sources established, etc., etc, to get it into production.
The simple fact, however, is that Mr. Obama is using the current economic crisis to accomplish something liberal politicians have long wanted to do, raise the CAFE limit. As Mr. Obama’s chief of staff, Raum Emanuel said, never let a crisis go to waste. It’s a cynical exploitation that likely will have negative effects on the economy, on American jobs, American competitiveness and the American standard of living.
Alas, Mr. Obama, that may be What Happens Next.
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