fuel economy

The Auto Bailout We Need

by Iain Murray on February 19, 2009 · 1 comment

in Deregulate to Stimulate, Economy, Energy, Politics as Usual, Precaution & Risk

The automakers have come back for more taxpayer money, which is exactly what we warned would happen when the first bailout was granted last year. The restructuring plans merely represent an attempt to acheive the results of bankruptcy, with the taxpayer picking up the costs. What is needed is not more taxpayer money, but a way to make US automakers competitive again. As I said in my recent Detroit News piece, we can do that through a simple, cost-free, program that will remove burdens Congress has unfairly placed on the US auto industry. These include:

• Repeal federal fuel economy 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 a reduction in fuel use is a necessary policy goal (I would contend it is not, but that’s an argument for another time), there are other policy options that would not impose direct costs on the automakers or restrict consumer choice. One is to remove the absurd “two fleet” rule that uniquely hampers U.S. automakers by prohibiting them from counting their foreign-made vehicles toward their fleet fuel economy average. Moreover, by reducing the weight of vehicles, high fuel economy mandates remove the single most cost-effective safety design feature of all, so this bailout measure would also save thousands of lives each year.

• Reduce the burden of safety legislation. There are too many safety rules that are counter-productive, such as mandated air bags, which have proved dangerous to children and people of less-than-average height. Consumers should be free to pick from a menu of safety options that allows them to take their own circumstances and preferences into account. This does not mean that automakers should be free to build cars that explode on ignition. There is a range of safety considerations, from safe to extremely safe. The United States is requiring too many “extremely safe” features while perversely reducing safety though fuel economy requirements. Again, the Detroit manufacturers feel these more intensely than other manufacturers because of the sort of vehicles they have specialized in.

• Halt the march of further design regulations. My colleague Wayne Crews has identified 22 new regulations that were being pursued last year that would increase the costs of designing and manufacturing new cars.

• Remove artificial barriers to merger through too strict interpretations of antitrust law. Federal antitrust authorities have stopped attempts at a merger of General Motors and Chrysler because the two firms together would have a dominant position in the “light truck market.” Yet the recent oil price spike proved that customers easily substitute passenger cars for light trucks, showing that there is no such distinct market. If GM and Chrysler could merge, there would be plenty of scope for eliminating inefficiencies, which would allow the merged company to compete more effectively.

• Allow automakers–and, indeed, all firms–to repatriate foreign profits without double taxation. This will provide a much needed injection of funds. No other country handicaps its own companies in this way.

• Suspend particulate matter regulations emanating from California — but imposed on the United States. These regulations prevent automakers from selling in America the kind of high-mileage diesel-powered cars that sell well in Europe and meet all European emissions requirements. This will immediately reduce fuel usage and reduce the Detroit companies’ research and design costs, which must now go toward meeting California standards. Moreover, because the cars already meet European Union environmental and safety standards, there would be no significant reduction in those protections.

With such a “liberate to stimulate” program in place, US automakers will be able to regain their place as world leaders. Instead, we see GM begging Congress for $8 billion to design cars as fuel-efficient as ones they already sell in Europe. This is absurd and must end.

NADA report proves California waiver would create regulatory patchwork

by Marlo Lewis on February 13, 2009 · 2 comments

in Energy, Global Warming, Legal, Mobility

A front-burner issue facing Environmental Protection Agency (EPA) Administrator Lisa Jackson is whether to grant a waiver under the Clean Air Act allowing the California Air Resources Board (CARB) to implement first-ever greenhouse gas (GHG) emission standards for new motor vehicles. Thirteen other states are poised to adopt the CARB program if Jackson grants the waiver. In all, about 40% of the U.S. auto market would come under the CARB rules.

Jackson’s predecessor, Stephen Johnson, rejected CARB’s application  in December 2007.  His reasons, published in the Federal Register in March 2008, may be summarized as follows. EPA’s historic practice has been to grant CARB waiver requests to address air pollution threats arising from circumstances specific to California–its topography, regional meteorology, and number of vehicles. In contrast, global climate change is, well, global. Conditions associated with global climate change in California are not sufficiently different from those in other states to justify a separate emissions program.

This argument, which is tantamount to saying that EPA won’t allow CARB to combat global warming because global warming is bad for people everywhere, predictably elicited scorn from California politicians and environmental groups.

“Patchwork Proven,” a new report by the National Automobile Dealers Association (NADA), presents two compelling arguments against granting the waiver that Johnson should have made.

First, granting the waiver would violate the Energy Policy and Conservation Act (EPCA), which prohibits states from adopting laws or regulations “related to fuel economy.” Yes, I’m well aware that in Central Valley Chrysler-Jeep, Inc. v. Goldstone (2006), the U.S. District Court for Eastern California held that EPCA does not preempt CARB from establishing GHG standards for new motor vehicles. However, the Court’s reasoning was spurious, and Johnson should not have given it a free pass.

The CARB emissions program is essentially fuel economy regulation by another name. CO2 comprises 97% of the GHG emissions from motor vehicles. Since there is no commercial technology for capturing or filtering out motor vehicle CO2 emissions, the chief way to decrease CO2-equivalent grams per mile (that’s how the CARB GHG standards are calibrated) is to decrease fuel consumption per mile, i.e., increase fuel economy.

As “Patchwork Proven” points out, the relationship between fuel economy and tailpipe CO2 emissions is so close that EPA tests compliance with federal fuel economy standards by measuring vehicular CO2 emissions. The bottom line: “Absent a significant increase in new vehicle fleet fuel economy, it is impossible to comply with CARB’s regulation.” So the CARB emissions program is substantially “related to fuel economy.” As such, it is prohibited by EPCA.

Alas, in this day and age of judicial activism and global warming hysteria, we should not expect Jackson to pay heed to the spirit of EPCA.  However, she and other Obama Administration officials should be worried about havoc that the waiver would wreak on the distressed U.S. auto industry.

CARB and its allies repeatedly deny that granting the waiver would create a regulatory “patchwork,” with automakers required to comply in different ways in different states. According to them, there would be at most two programs: the federal program and the California program.  A dual system of regulating air pollution from vehicles has been in place since the start of the Clean Air Act. Vehicles built to federal standards are “federal cars” and vehicles built to CARB standards are “California cars.” Automakers have had no trouble building  cars that meet two different emission standards. Promulgating GHG emission standards would merely update a system that has worked well for decades, CARB contends.

The fundamental flaw in this argument is that CO2 is not like the air-quality damaging pollutants subject to existing EPA and CARB emission standards.  For smog-forming pollutants such as nitrogen oxides, both EPA and CARB specify how many grams per mile individual vehicles may emit. That’s not how CARB regulation of GHG emissions would work. There would not be two types of vehicles, “California” and “federal.” Rather, the CARB standards specify the CO2-equivalent grams per mile that each automaker must attain on average for the fleet it delivers for sale. In other words, the CARB program implicitly specifies fleet-average fuel economy.

This is a radical departure from previous EPA and CARB emission standards, and it inexorably produces a regulatory patchwork.

Here’s why. Consumer preferences and the corresponding mix of vehicles delivered for sale differ from state to state. For example, in 2007, the Dodge Ram (with a fuel economy rating of 18.7 mpg) accounted for 20.66% of all Chrysler vehicles sold in California, but only 9.46% of all Chrysler vehicles sold in Rhode Island, and 8.43% in New Jersey. In contrast, the Jeep Grand Cherokee (with a fuel economy rating of 20.2 mpg), accounted for only 5.23% of Chrysler vehicles sold in California but 11.23% of Chrysler vehicles sold in Rhode Island, and 16.26% in New Jersey.

The number and percentage of vehicle models an auto company “delivers for sale” differ from state to state.  For any auto fleet, no two states are likely to have the same average fuel economy or CO2-equivalent grams per mile.

Thus, to comply with the CARB standards, automakers would have to adjust the “mix” of vehicles offered for sale in each state adopting those standards. In each such state, an automaker would have to “deliver for sale” enough vehicles with CO2-equivalent per mile (fuel economy) ratings above the CARB standard to offset vehicles delivered for sale with ratings below. The “mix-shuffling” required for compliance  in State A would likely be different from that required for compliance in State B, C, and so on.

Note that the CARB program would create a vehicle-rationing patchwork even if there were no competing federal fuel economy standards. As the NADA report puts it, “If CARB’s regulation were to take effect in all 50 states, the resulting 50-state patchwork would require automakers to manage 50 unique state fleets and to individually meet CARB’s standard 50 different ways.”

Since the current mix in each state is determined by consumer preference, the adjusted mix would clash with consumer preference. The most likely compliance strategy would involve “rationing larger vehicles, discounting smaller models for quick sale, or other pricing strategies that distort the market,” the NADA report warns. Is that any way to rescue the auto industry?

Adding insult to injury, it’s not even clear that the CARB standards would achieve any significant reduction in emissions. CARB claims that adoption of its standards by 13 states would eliminate 59% more CO2 emissions in 2020 than would compliance with federal fuel economy rules. But companies forced to “deliver for sale” smaller, lighter, more fuel-economical vehicles in the CARB states would be allowed, under the federal fuel economy program, to sell more large, heavy, gas-guzzling vehicles in non-CARB states.

Moreover,  if CARB rules restrict the supply and increase the cost of gas-guzzlers “delivered for sale” in California, for example, Californians would still be free to buy lower-priced gas guzzlers in Nevada and bring them back home. Emissions in California might go down somewhat, but auto sales, jobs, and tax revenues might go down even faster.

California politicians and environmental lobbyists talk about the CARB emissions program as if it were the greatest thing since sliced bread. Lisa Jackson would be well advised to read “Patchwork Proven” before deciding on CARB’s waiver request.

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.

Auto Bailout – Destroying Detroit by ‘saving’ it

by John Berlau on December 11, 2008 · 8 comments

in Bailout Watch, Economy, Mobility, Nanny State, Odds & Ends, Personal Liberty, Politics as Usual, Regulation, Zeitgeist

In a famous quotation from his 1986 address to the annual White House Conference on Small Business, President Ronald Reagan quipped that “government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”

The Detroit bailout bill that passed the U.S. House of Representatives last night — agreed to by the White House and Democratic leaders but at this point apparently without enough Republican support to survive a filbuster in the Senate — is unique in that it fulfills all three of the government actions Reagan describes in one fell swoop. All it once it not only subsidizes U.S. automakers, it subjects them to heavy regulation as well that have nothing to do with profitability and everything to do with fulfilling “environmentally correct” objectives.

Existing mandates can in part — but only in part — explain some of Detroit’s downfall. As CEI’s Sam Kazman wrote recently in the Detroit News, the Corporate Average Fuel Economy (CAFE) standards are a “$100 billion research and development burden” that “have long been a noose around the industry’s neck. CAFE ignores the market, in which consumers balance their demands for fuel efficiency against other needs such as size, and forces automakers to sell models of cars, so that the “average” car meets a ceratain miles-per-gallon.

Over the years, CAFE has led to the abandonment of popular models such as the family-size station wagon. It has also meant, as Kazman points out, a reduction in traffic safety as consumers have been forced into smaller, less crashworth cars. The National Research Council estimates that CAFE has caused 2,000 additional traffic deaths per year.

Yet Congress accelerates these efficiency mandates that are deadly for the industry and, literally, for drivers, as a condition of providing the money to “save” it. As Wall Street Journal columnist Holman W. Jenkins Jr. writes, “To become ‘viable,’ as Congress chooses crazily to understand the term, the Big Three are setting out to squander billions on products that will have to be dumped on consumers at a loss.”

The bailout conditions the dollars the federal government would hand out on the industry largely adhering to an emission standard from California that is much stricter than that of the federal government and based on faulty science. As Jenkins writes, this mandate would mean “an even more massive auto wreck” that “would render most of [the industry's] auto designs, profit centers and tooling unsalvageable.”

If Congress really wanted to provide immediate help to the auto industry it would repeal the costly CAFE, or at least get rid of the “two fleet” rule that mandates that smaller cars have to be made in the U.S., not in Europe where they are more profitable. This mandate is another expensive demand that autoworker union muscle had enacted that is now dragging Detroit down. Congress should also suspend antitrust rules to make cost-saving mergers or joint ventures easier.

In the meantime Detroit — the vast community including the parts makers and others that work with the auto industry — should really ask itself if bankruptcy would be any worse than the price of becoming an appendage of Washington in a bailout. A Chapter 11 bankrupty gives the car firms a chance of being restructured into lean, profitable companies. This bailout would not only squander billions of taxpayer dollars, but put the foot on the pedal of government regs driving Detroit into “reverse.”

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