The Loss of the Consumers' Voice...

I am by no means a tree hugger. However, I believe we need to maintain our environment to be responsible. Who likes to walk their dog with trash along the forest trail, or breathe noxious fumes while stuck in traffic on the highway? However, I am also a free market economist. As such I believe in the power of letting market forces drive industry.

A major success in this vein in recent history was the revitalization of Detroit’s auto manufacturing in the 80’s. When people started buying Japanese and other imported automobiles because they had a significantly higher quality construction, automakers in America were almost driven out of business. They responded with technological innovations that either matched or surpassed the imports. Thus everyone benefited.

Now Congress is set to increase mandatory fuel economy rather than let this same market force work:

ASK a European to describe a typical American car in one word and the answer will invariably be “big”. An energy bill set to pass through the House of Representatives this week is likely to number the days of the vast automobiles that are such a potent symbol of American power. On Friday November 30th a deal was brokered by John Dingell, a pro-car Democrat, and Nancy Pelosi, speaker of the house, to make cars travel on average no fewer than 35 miles per (American) gallon by 2020. As a measure of the task ahead, no car in Ford’s range is yet so thirstless.
America’s embattled carmakers have reluctantly agreed to the new efficiency standards. Their only hope of a reprieve, if the legislation makes it through Congress, is a presidential veto. George Bush objects to other parts of an energy bill that requires energy companies to produce 15% of electricity from renewable sources and ditches billions of dollars of tax breaks for oil companies. Nonetheless, in acquiescing to the proposals American car companies have accepted the inevitable:lawmakers want cars that are more fuel efficient to mitigate environmental damage and improve America’s energy security.
The new corporate average fuel economy (CAFE) standards have been a long time coming. The 35mpg target for average fuel efficiency across the range of a car company’s vehicles in 2020 would be the first lifting of CAFE standards for cars since 1985. The current standard for corporate average fuel economy of 27.5mpg for cars was introduced that year. The standard for light trucks has been slowly lifted over the years and now stands at 22.2mpg. Since 1985 the fuel economy of cars and trucks has barely shifted. Although engines have become more efficient cars have also grown bigger and beefier. Drivers have become used to the added comforts that now come as standard and new safety features have also piled on the pounds.
So will the American love affair with the sport-utility vehicle (SUV) have to end? Some of the ardour has already gone out of the relationship. The spike in fuel prices after Hurricane Katrina, and high prices since, put a crimp on SUV sales. That has dealt a blow to a domestic car industry already reeling from the competition of lower-cost Asian carmakers.
One concession that America’s carmakers had written in to the current bill is that cars and light trucks (including SUVs) will not be counted separately within the 35mpg limit but will have different targets in the transition period. SUVs will be allowed to remain relatively thirsty. Thereafter, carmakers will have to keep to the new target by selling enough small petrol-sippers to offset the gas guzzlers in their range. The ability to make some bigger cars is important for American firms. Smaller cars cost nearly as much to design and assemble as bigger models but profit margins are far tighter.
America’s carmakers are willing to go along with the deal and believe they can meet the tough targets. Cars and engines will become smaller and more use will be made of diesel, turbocharging, biofuels (which will attract a CAFE credit) and hybrid technologies. Admirers of “muscle cars” will shed a tear. It seems that Americans will have to become a bit more like Europeans.
That shift could be difficult. In November Green Car Journal awarded the accolade of America’s “Green Car of the Year” for 2008 to the Chevy Tahoe Hybrid, with a 5.3 litre V8 engine supplemented by a small electric battery. The most fuel-efficient version will do only around 22mpg. The overall title of “European Car of the Year” went to the new Fiat 500, a snazzily updated version of a tiny Italian classic. Some models will do around four times better than the Tahoe on fuel economy.
Europeans have long been accustomed to scooting round in pocket-sized cars. Heavy taxes on petrol have provided plenty of motivation. Proposed EU limits on carbon-dioxide emissions (a proxy for fuel efficiency) will ensure even greater efficiency in future. American cars have plenty of catching up to do.

economist.com

It isn’t that fuel efficient cars aren’t available. The Prius, the Civic, even some SUV’s are being produced as hybrids, so the choice is present in the market. Congress even intervened (in a positive manner) by introducing tax incentives to people who purchased these hybrid cars. The reason this incentive was necessary was because these cars are more expensive to purchase (i.e. they have a high initial cost), and the added cost benefit in fuel isn’t offset in a five year period for the most part.

Another way to introduce more fuel efficient cars is to make them lighter, i.e. smaller. However, doing so makes them less safe and a recent study indicates doing so on a large scale would result in thousands more deaths on the highway from automobile accidents than already exists. Not a very attractive option.

Many people will argue big business is limiting entry into the market for more fuel efficient cars. The reality is, as more people put their money where their mouth is concerning the environment, automakers are manufacturing and selling more models of more fuel efficient vehicles than before. The problem isn’t the we can’t make the cars, or we don’t have the technology. It has been around for decades. The problem is making it attractive to the average consumer because it is more expensive, as technological innovation always is. As the cars become more common, prices will drop. Look at the computer industry as a perfect example.

So Congress is now set to pass this legislation removing your choice, your power and liberty as a consumer in a free market to influence the choice and production lines with your purchasing decisions. Another step towards governmental controlled industry.

Hope President Bush vetoes this bill.