The Real Auto Bailout: A Six Point Plan for Regulatory Relief

by Iain Murray on December 19, 2008 · 5 comments

in Bailout Watch, Energy, Mobility

Here’s what the auto companies really need – a reduction in the regulatory burden placed on them by Congress. These burdens have placed Detroit at a competitive disadvantage because a lot of them are aimed at eliminating the sort of vehicles that Detroit has proved adept at designing and marketing.

1. Repeal the CAFE requirements. They restrict consumer choice by insisting that fuel economy take precedence over safety, and impose restrictions on design that reduce the competitive advantage of Detroit automakers. If reduction in fuel use is a necessary policy goal – and CEI would contend that it is not – there are other policy vehicles to use that would not impose direct costs on the automakers or restrict consumer choice. Moreover, by reducing the weight of vehicles, CAFE removes the single most cost-effective safety design feature there is. It would also remove the ludicrous “two fleet” rule that uniquely hampers US automakers.

2. Reduce the burden of safety legislation. There are too many safety rules on the books that are actually counter-productive, like mandated air bags. Consumers should be free to pick from a “menu of safety options,” taking their own individual circumstances and preferences into account. This should not be taken as a suggestion that automakers should be free to build cars that explode on ignition, but that there is a range of safety considerations that range from safe to extremely safe, and at present we are mandating too many “extremely safe” features while at the same time perversely reducing safety though CAFE (see point 1 above). Again, the Detroit manufacturers feel these more intensely than other manufacturers because of the sort of vehicles they have specialized in.

3. Halt the march of further design regulations. There are plenty of examples here.

4. Remove the artificial barriers to merger represented by too strict interpretations of antitrust law. This will enable GM and Chrysler to merge.

5. Allow automakers and, indeed, all firms to repatriate foreign profits without having to pay a double tax. This will provide a much needed injection of funds. No other country handicaps its manufacturers in this way.

6. Suspend particulate matter regulations emanating from California that prevent the automakers selling high-mileage diesel-powered cars that sell well in Europe and meet all European emissions requirements. This will immediately reduce fuel usage and reduce unnecessary research and design costs.

Taken together, this deregulatory bailout package would restore Detroit’s competitive advantage and obviate the need for taxpayer money. Congress has hurt Detroit with these rules. It should recognize that and remove them, rather than hurting taxpayers as well.

Fuel_Frugal_44mpg December 20, 2008 at 3:03 am

LOANS for Short Term Survival … But What Detroit Urgently Needs Is Positive CASHFLOW! The current Federal loans for the Detroit auto industry are necessary for immediate survival (at least for Chrysler and GM). Although survival is highly questionable for Chrysler even with loans much larger than those currently under discussion. The loans currently in place will not guarantee survival until "new" product is developed, produced, and introduced into the market in about 12 to 36 months (maybe even later). These "new" products are achieved with high cost of resources (money, time, and manpower) with the intended purpose of displacing "current" product with, hopefully, a "more desirable" set of offerings to stimulate greater demand. But there are NO GUARANTEES that demand will materialize for this incremental product improvement! Since these incremental products are generally NOT radical or IMMEDIATE, they will probably only displace sales of traditional product and NOT generate a noticeable POSITIVE CASHFLOW even after 18~36 months or so! So … how does Detroit generate the urgently needed IMMEDIATE … NEW … POSITIVE CASH FLOW for OUR economy! Here is an idea that requires no taxpayer dollars, can be done quickly, requires no major investments by the Detroit auto industry (including lead time), addresses a previously neglected US automotive market segment, and CAN GENERATE … NEW … POSITIVE CASHFLOW almost IMMEDIATELY! Simply waive, for 24 months, ALL import, tariff, safety, and emissions restrictions on new vehicles achieving more than 44 mpg(US) [53 mpg(Imperial)] combined cycle and that satisfy Euro Step IV (or Step V) emissions [should require DPFs for diesels] plus current Euro safety standards. This waiver can be granted by Presidential Executive ORDER under the War Powers Act because oil imports/energy independence are National Security Issues. As soon as the waiver goes into effect, Chrysler, Ford, and GM, with their European partners, could begin importing this class of vehicles and selling them through their existing dealerships for IMMEDIATE CASH FLOW utilizing their current excess European inventories and production capacity. During the 24 month waiver the consumer gets the opportunity to buy and use/experience an entirely new class of vehicles. Meanwhile, Detroit discovers consumer preferences, retools/retrains manufacturing to DOMESTICALLY manufacture the newly clarified preferred product set. This same 24 month waiver period would also be used to bring this "new domestic design and production" into compliance with US emissions and safety standards. This strategy requires no alteration of the "traditional" automotive product set since these "temporary imports" address a previously undeveloped market segment. The actual observed sales rates will be used to adjust future production strategies and volumes! This is a minimum resource/cost, quick response solution for Detroit to start generating REAL POSITIVE CASH FLOW (in OUR weak economy) through temporary use of their excess non-domestic product and production capacity while they retool domestically for a more appropriate domestic product set based on known consumer acceptance/purchase rates. This would be a serious jumpstart to a new level of fuel frugal automotive product with lower emissions requiring unusually low risk. It might, in the simplest form, just require putting emissions abated FUEL FRUGAL Euro type power trains into existing US vehicle designs. Of course, if the Detroit manufacturers did not wish to participate in the distribution of these 44 mpg plus vehicles through their dealerships, the consumer would be free to import on their own or through importers. Here are some of the benefits … IF … demand in this "new" segment is real and significant and then Detroit and others commit to and quickly built these "new existing" FUEL FRUGAL vehicles within the US in relatively high volumes, we could "kill 16 birds with one stone" … not limited to quick response, positive cash flow, expanded domestic market demand, job creation, improved economy, increased tax revenue, reduced fuel consumption/emissions/oil imports, stronger/more creative domestic auto industry/industrial base, improved National Security … . Note that there should be no immediate shift in demand for Detroit's traditional product since these imported vehicles are outside the existing market characteristic (unless of course, the traditional purchases are a result of "unsatisfied pent up demand"). And of course the most important thing … domestic volumes could potentially EXCEED 20 million units annually within 4 years because of the opening of this previously "untapped" fuel frugal segment (to the benefit of industry, the individual/business consumer, economy, and tax revenues). And … if the market expands … there is the opportunity for more domestic auto industry jobs (posssibly 1 to 6 million new jobs). Just in case there is any question that these vehicles exist, please see what Detroit and their European partners (Mazda, Volvo, Saab, Vauxhall) already have that are rated 53~77 mpg(Imperial) combined cycle [approximately equivalent to 44~64 mpg(US) combined average] in the UK athttp://www.vcacarfueldata.org.uk/search/fuelCon….. and for specific vehicle characteristicshttp://www.autocar.co.uk/SpecsPrices/SpecsAndPr….. Sadly, it appears that Chrysler has nothing in this fuel economy range even in Europe which raises, even higher, the question of future viability! NOTE: It is true that a significant portion of the current 44 mpg plus vehicles are diesel. Have you considered that Detroit has, on average, been selling between 0.5 and 1 million non Tier 2 Bin 5 compliant diesel "light vehicles" (averaging about 17 mpg) annually for more than 8 years. However, apparently Audi, BMW, Mercedes, and VW FUEL FRUGAL turbo diesels have already successfully achieved California emissions compliance and 40 mpg, and greater, combined average with Honda, Nissan and other not far behind.The down side of this plan is that … IF Detroit fails to respond responsibly with quality and cost effective product in a timely manner, then they will loose even more market share. It will just be quicker.

Nancyf December 23, 2008 at 8:39 pm

Oh, they are going to pay for taking our jobs away. They haven't even begun yet. They OWE Americans. And so do alot of others. How would you like us to slap the borders closed to everything EXCEPT those necessities of life? They've gotten away with too much as it is already and thought their good looks would get them by.

Micheal A. December 30, 2008 at 3:45 pm

Our economy is in a great bailout and because of this the economy has definitely created financial chaos. All of us are affected by the economic meltdown that shook not only our country but also the whole world. It doesn’t matter if you’re an entrepreneur or a plumber; you are going to feel some of the economic tension one way or another. Even two major Detroit newspapers, The News and the Free Press, are in need of extra cash and have significantly cut back on their daily home delivery. Just like any other business, the newspaper industry is dependent on the economy and advertising dollars. However, we are all aware of the importance of newspapers.

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