REALLY fixing Detroit
03/13/09 19:11
Taxpayers have pumped over $20B into Detroit with more to com - yet it is a band aid, not a fix. To be sure, Detroit and its unions have been their own worst enemies but government regulation is a close second. Deregulation and synchronization with global standards are the key to the survival of the US auto industry. Here’s what needs to change to ensure economic viability AND environmental sustainability of this industry. 1. Harmonize safety & pollution regulations with Europe to allow quick & cheap retooling of US factories for more competitive vehicles already produced by GM, Ford & Chrysler’s European subsidiaries or prospective parents (in the case of Chrysler.) European regulations are already 90% similar, however the 10% difference requires thousands of detail changes in components ranging from bumpers to doors to engine parts. Harmonizing has long-run benefits that reduce the cost of cars by maximizing commonality.
2. Fix CAFE regulations and phase out CAFE in ten years (two product lifecycles)
3. Increase federal gas taxes by 20¢ rising to $1.00 per gallon over 10 years to wean Americans off the inefficient vehicles that force America to buy foreign oil. Car dealers and manufacturers know that demand for efficient cars will be low if gas prices are low as they are now, so increasing taxes helps steer consumers towards more efficient vehicles. It’s the right time because increasing taxes when gas prices are low does not sting consumers - and gas prices are likely to stay low through the recession due to lower demand for oil. As this is written, over 80 million barrels of excess crude oil are being stored at sea in anchored tankers and OPEC is having relatively little success at increasing crude prices by cutting production.
An attendant benefit is regulatory bodies could be downsized as regulation is simplified and then eliminated. There is no need to duplicate European crash tests for example, so perhaps the US and Europe divide and conquer - each testing half. The CAFE department gets simplified and then eliminated.
2. Fix CAFE regulations and phase out CAFE in ten years (two product lifecycles)
- Eliminate separate domestic & imported “fleet” averages to allow all cars from each manufacturer to be counted in one fleet. This allows all manufacturers to choose where they make each model based on best economics. (LIght trucks are already counted as one fleet regardless of country of origin.)
- Eliminate all CAFE loopholes - especially the credit for so-called “E85” vehicles that can run on 85% ethanol because it’s #1 a poor fuel that exists only if it is highly subsidized and #2 it has a negative energy balance. Manufacturers use the E85 loophole to nearly double the CAFE mileage for the most inefficient vehicles that would otherwise put manufacturers out of CAFE compliance.
- Increase the fines for being out of compliance with CAFE by 10x. Numerous manufacturers such as BMW, Mercedes and sometimes Chrysler prefer to pay the fines than comply. Sometimes these fines are just a few hundred thousand dollars - hardly measurable if you sell a million cars.
3. Increase federal gas taxes by 20¢ rising to $1.00 per gallon over 10 years to wean Americans off the inefficient vehicles that force America to buy foreign oil. Car dealers and manufacturers know that demand for efficient cars will be low if gas prices are low as they are now, so increasing taxes helps steer consumers towards more efficient vehicles. It’s the right time because increasing taxes when gas prices are low does not sting consumers - and gas prices are likely to stay low through the recession due to lower demand for oil. As this is written, over 80 million barrels of excess crude oil are being stored at sea in anchored tankers and OPEC is having relatively little success at increasing crude prices by cutting production.
An attendant benefit is regulatory bodies could be downsized as regulation is simplified and then eliminated. There is no need to duplicate European crash tests for example, so perhaps the US and Europe divide and conquer - each testing half. The CAFE department gets simplified and then eliminated.
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