Harsh regulations will mean hardship for auto industry
Published: Friday, August 26th, 2005
Some pointless ideas die hard, which is an accurate description of the fuel economy standards the federal government imposes on automakers. The Bush administration, although allegedly in favor of freer markets, announced new standards this week that will require higher gas mileage ratings for the light trucks that dominate U.S. roads. The standards would push fuel economy up by about 14 percent in general, but the increases vary by market segment. Small SUVs would have to achieve an average of 28.4 miles per gallon by 2011, with large SUVs required to get to 21.2 mpg. Ironically, the category of mega-vehicles — such as the Hummer H1 and Ford Excursion — is exempt from the standard because they weigh more than 8,500 pounds and are therefore viewed more as a commercial vehicle. Enter the law of unintended consequences: Vehicle manufacturers are expected to react to the new standards by increasing the weight of their larger SUVs and trucks to push them over the 8,500-pound. limit, and therefore exempt them from the standards. In the 1970s, when standards were first initiated, carmakers responded by building lighter cars, and the result was a reduction in passenger safety given that lighter cars typically don’t fare as well in many accidents as heavier ones. Keep in mind that the administration’s new standards will, if predictions are right (and how often are government predictions right?), save a mere 10 billion gallons of gasoline. That sounds like a lot, but it really amounts to about a month’s worth of gasoline consumption over a 15-year life span of 35 million vehicles. That’s a pittance. But even if environmentalists have their way and harsher standards are imposed, it’s doubtful they will do much more than impose hardships on the auto industry and force people into vehicles they don’t want to drive. Meanwhile, the market itself has begun to deal with the fuel-economy issue. Notice that gas-guzzling large SUVs are being heavily discounted these days while high-mpg cars are hot commodities, the market’s reaction to the soaring price of gasoline. That’s how markets work. All the government regulation in the world won’t change that.
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