Mandate destroys buyers’ freedom of choice; whacks the economy

By —— Bio and Archives--October 8, 2017

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FLINT, Michigan  — There is an old saying that those who don’t learn from the mistakes of others are destined to repeat them.

Before Congress finalizes ill-conceived fuel economy standards that would almost double gasoline mileage by 2025, while boosting costs of the average vehicle by some $3,000 and pricing millions of Americans out of the market, it could learn a lesson from a similar misguided experience 40 years ago.

In the late 1970s, President Jimmy Carter, citing a need to reduce U.S. dependence on OPEC oil, mandated a 53 percent increase in fuel economy over seven years.


A generation of inferior vehicles

To meet the standards, automakers crammed cars with unnecessarily complex fuel-saving technology, depowered engines and radically downsized their fleets.  The result was a generation of inferior vehicles.

Worse, those fuel standards resulted in tens of thousands of needless highway deaths because the smaller, lighter cars were less safe.

Now a new rule requiring a near-doubling of Corporate Average Fuel Economy (CAFE) standards from 34.5 miles per gallon to 54.5 miles per gallon is up for final review.

The rule was mandated by President Obama and adopted by Congress in 2015.  Like Carter, Obama’s main goal was to reduce dependence on foreign oil.

But oil imports as a share of products supplied have already been dropping dramatically due to America’s shale revolution, and have gone from more than 60 percent at their peak in 2005 to only 22 percent this year.  Yet demand for U.S. oil is expected to grow.

Instead of mandating greater fuel efficiency to further reduce our declining reliance on foreign oil, the government could increase domestic oil production by giving energy producers greater access to public lands and offshore areas.

Consumers strongly prefer SUVs and pickup trucks over small cars

As was made painfully evident when Hurricane Harvey hit, most of the American oil industry is concentrated in the Gulf Coast region, simply because of barriers to development elsewhere.

But, alas, we are still finding ways to tie up energy producers with expensive new government regulations.

When Obama persuaded Congress to raise CAFE standards, he hoped to have a million electric cars on the road even though it’s becoming obvious that consumers prefer larger gasoline-burning vehicles.

In a review last year assessing the progress of automakers towards the new CAFE standard, regulators said the standard was unlikely to be achieved.  Not because of technological problems, but rather because consumers strongly prefer SUVs and pickup trucks over small cars.

If Congress finalizes the new CAFE standard, automakers say the mandate will require significant changes in the kinds of cars they build and try to sell.

Greater fuel efficiency requires more intense engineering, which will drive up car prices.  There will be a shift to building cars with smaller engines because they are more fuel efficient and lighter.  But Americans shouldn’t be forced to buy vehicles they don’t want.

Everyone wants greater gas mileage.  But the CAFE rule isn’t consistent with scientific and economic reality.


Path to greater energy independence is less, not more, regulation

Team Obama cited fuel cost savings as a benefit of the new fuel efficiency standards, but savings from greater fuel economy will be more than offset by motorists paying thousands of dollars more per new car for unproven technologies they don’t want.

Those with knowledge of the auto market know that one size does not fit all.  Some consumers prefer big, safe SUVs and pickups, while others prefer light-weight more fuel efficient vehicles.

Instead of using across-the-board government regulations, we should allow for consumer preferences, engineering realities and market conditions to shape the efficiency of the fleet.

Here we are in 2017, four decades after Carter’s blunder, and some politicians still haven’t figured out that the path to greater energy independence is less, not more, regulation.

Competition among automakers for the next generation of fuel-efficient cars is a much better way to change the vehicle fleet of the future.  The obvious answer is for Congress to retract the ill-conceived fuel-economy standard.


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Mark J. Perry -- Bio and Archives | Comments

Mark J. Perry is a professor of economics and finance in the School of Management at the University of Michigan–Flint.  He holds two graduate degrees in economics from Virginia’s George Mason University and a Masters of Business Administration from the University of Minnesota.  Readers may write him at 2111 Riverfront, Flint, MI 48502.

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