TCS Daily


The Inconvenient Truth About Cars

By Pete Geddes - January 7, 2009 12:00 AM

I have a hockey-playing buddy who is converting an old Honda Civic into an electric car. His goals are modest; he'd like it to be able to make the round trip from Bozeman to Bridger Bowl. I wish him well with this fun and constructive project, but I expect it will be some time before we see electric cars on the road. Here's why.

U.S. energy policy is best described as "keep it cheap." It's ironic that our political class is berating the Big Three for building the vehicles Americans bought in response. Congress is now poised to mandate that Detroit manufacture electric and hybrid vehicles. This approach is bound to fail, for these are cars consumers (a) don't want and (b) even if they did, can't afford. The recent plunge in the price of gas at the pump has not helped. November sales of hybrid cars fell 50 percent. U.S. hybrid sales are now back where they were in 2005. (Ford's best selling product in November was the F-150 pickup.) Only when electric and hybrid vehicles really do provide more value to consumers than the alternatives will they succeed.

There is a straightforward way to transition the U.S. auto fleet to a greener future. Place a gradual tax on gasoline such that in five years it reaches a floor of $5 per gallon. Nothing else will work, certainly not the Rube Goldberg approach Congress has taken since the 1970s, best exemplified by the Corporate Average Fleet Economy (CAFÉ) standards.

In a masterstroke of special-interest politics, the UAW used CAFÉ's "two fleet" rule to forbid Detroit from importing smaller cars from its foreign operations. Forced to build small cars in domestic plants, with above market labor costs, Detroit could not make a profit. (In 2007, Toyota made 9.37 million vehicles and GM about the same. Toyota made a profit of about $1,874 per car, while GM lost $4,055.) Even Japanese and European carmakers rely on sedans with moderate fuel economy for profits. Small, super-efficient cars remain a niche product. Here's an inconvenient truth: forcing Detroit to build fuel-efficient cars in UAW factories is inconsistent with viable, sustainable manufacturing.

Critics often portray the Detroit automakers as "greedy, short-sighted profit seekers." To claim Detroit is refusing to sell cars consumers "really" want, compared with the cars they actually purchase, is a stretch. Is there a simpler explanation? Perhaps alternative cars are simply not ready for prime time?

The Financial Times reports on a French government study that analyzed the options for building cleaner, more fuel-efficient cars by 2030. After reviewing a leaked copy, the FT notes: "It [the report] concludes...there is not much future in...all electric-powered cars. Instead, ...the traditional combustion engine powered by petrol, diesel, ethanol or new biofuels...offers the most realistic prospect of developing cleaner vehicles. ... the overall cost of an all-electric car is unviable at around double that of a conventional vehicle. Battery technology...still...severely limits performance both in terms of range and speed."

The Wall Street Journal's Holman Jenkins' coverage of this issue nails it: "Ford and GM in Europe successfully sell cars that are small, but not cheap. Europeans are willing to pay top dollar for a refined small car that gets excellent mileage, because they face gasoline prices as high as $9. ... In the U.S., except during bouts of high gas prices or in the grip of a Prius fad, the small cars that American consumers buy aren't bought for high mileage, but for low sticker prices. And the Big Three, with their high labor costs, cannot deliver as much value in a cheap car.... [Legislators] won't repeal CAFE because they fear the greens. They won't repeal CAFÉ's "two fleet" rule...because they fear the UAW. They won't hike gas prices because they fear voters."

Shouldn't our energy policies be crafted to meet their stated objectives? Because policymakers avoid imposing obvious costs, they favor fuel economy standards. Then they can duck blame by hiding the costs in higher car prices. The honest and effective approach to fuel economy is a floor on the price of gasoline.


Pete Geddes is Executive Vice President of FREE.
This article first appeared on FREE-ECO.org.
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5 Comments

Honest and Effective
The article ends with this:
>"[Legislators] won't repeal CAFE because they fear the greens. They won't repeal CAFÉ's "two fleet" rule...because they fear the UAW. They won't hike gas prices because they fear voters." So far, so good.

Then we get this:
>"Because policymakers avoid imposing obvious costs, they favor fuel economy standards. Then they can duck blame by hiding the costs in higher car prices. The honest and effective approach to fuel economy is a floor on the price of gasoline."

You lost me. Aren't the "obvious costs" that are being hidden really UAW contract labor costs, rather than fuel costs? Would setting a price floor on fuel costs make the true costs any more transparent? Or would it simply hide them under another layer of artificial costs?

Wouldn't the "honest and effective approach" be for our elected representatives - who supposedly represent the voters at large, not just those who contributed the most to their political campaigns - to get over their fear of the UAW?

Let's face it - the UAW is a monopoly that needs to be broken. And until that happens, US automakers will be at an unfair disadvantage against all other car makers.

If the CEOs of the Big Three auto producers got together in a private smoke filled room, and agreed to not sell their products below a set price, effectively setting price controls on the auto market, we would call that a monopoly and we would pull out the anti-trust laws to break it up. But when the leaders of these three labor pools join forces, and make similar declarations, effectively setting price controls on the labor market, nobody bats an eye. Why is that?

Is not the most "honest and effective approach" to let the UAW choke on its own greed, and turn the auto labor market into a free and open labor market once more?

re honest.
I congratulate joseph for proposing, 'a free and open labor market'. But we can't expect that to happen when the unions have such a grip. If the big car companies were allowed to go bankrupt, the only loser would have been the UAW. Now what do these big corrupt unions usually threaten to people who try to disrupt their cushy existance? Which politicians are not afraid of that?
The only example I can think of in past years is M. Thatcher in England who broke the coal miners union that kept a stranglehold there. Had she been american and tried to do that to the UAW, she'd prbably be dead.

Americans get what they want.
Deer and bull elk grow horns. Male peacocks have colorful plumage. American males buy cars with names like "Mustang" and "Challenger."

Do NOT propose Congress raising my taxes!!!
Back in 1980 I bought a VW Rabbit Diesel that got 45+ MPG around town, and 50+ if I tried real hard on a longish trip. It was a 4-door - 4-banger. It was comfy and ran well!


There's no good technical reason why we can't buy improved models today that get at least 60-80 MPG. VW has built a prototype single-seater that gets 200MPG!


I also had a Honda "100" motorcycle that got 100+MPG


I'd be quite happy to drive and ride something similar today - but the lawyers have made life too expensive for that.


Plenty of people would be happy to drive a little 2-banger, 2-seater with a short bed or a big trunk - if we only had an environment where it could be built economically and driven safely.


If you want Congress to do something, ask for something that takes the burden off the producers and provides incentives and choices for the consumers, not something that adds a burden to both!


Let Congress reform tort law, and let Congress create small-car lanes on the freeway, and let Congress unify insurance and medical forms, and let Congress free the carmakers to create and deliver what the people want. Let Congress CUT taxes on people who buy small, efficient vehicles. Let Congress repeal their insane CAFE and two-fleet rules.


In other words, Ask Congress to do their job effectively so that we can do ours effectively. That does not mean that they run the country, or the car business. That means that they foster an environment conducive to private commercial development of better automotive appliances. And then they get the hell out of the way and watch people do their best.


Congress DOES NOT NEED ANOTHER PENNY OF OUR MONEY - they'll only waste it like they do now -- don't you know that? Gas prices will be rising again soon enough, without any Senators sticking their grubby paws deeper into our pockets!

Re: Americans get what they want
And proud of it!

They only make a few models like they used
to. Try pricing a 1970 Mach 1 or 1970 Hemi
Challenger and see which cars have good
resale value.
The ones today are also a pleasure to drive.

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