With control of GM and Chrysler the government is getting its wish. It is reaching its goal of over the last 30 years, to be able to force Americans to drive what it says they may drive.
In 1976 it began in force. An auto industry already with quality struggles and difficulty meeting the emissions and safety regulations got hit with Corporate Average Fuel Economy standards. In other nations the tax code was used to encourage people to buy smaller vehicles that used less gasoline, but that was not good enough for the rulers of the United States of America, they wanted vehicles that did not meet their fuel economy standards to simply go away.
– GM bankruptcy plan eyes quick sale to government (Reuters):
NEW YORK, May 19 (Reuters) – If General Motors Corp (GM.N) files for bankruptcy, as widely expected, its healthy assets will be quickly sold to a new company owned by the U.S. government, a source familiar with the situation said on Tuesday.
The source, who was not cleared to speak with the media and would not be identified, said the U.S. government would pay for the assets by assuming the automaker’s $6 billion of secured debt and forgiving the bulk of the $15.4 billion of emergency loans that the U.S. Treasury has provided to GM.
While in Europe, large vehicles can still exist; the buyers simply have a huge tax bill. This is not a good arrangement, but it at least allows automakers to decide what they will build and control the mix of their vehicle lineup. CAFE is different. Should an automaker’s lineup not produce the result that the government has mandated, they are penalized across their entire lineup. That is they are taxed for every vehicle they sell. Even if the automaker meets these targets, a vehicle that has a fuel economy that is too low requires the buyer to pay a gas-guzzler tax. This tax was impressive in 1976 dollars, $1000 to $7000. Thanks to inflation, it’s now usually less than the sales tax on the vehicles it applies to. (And since it’s considered part of the sales price of the vehicle, there is a tax on the tax.)
The goal of CAFE was obvious; it was to control what we could buy from the automakers, to eliminate the large vehicles that Americans prefer. In this goal it was initially largely successful as by 1985 the big three had purged their lineup of most of their large car offerings. In their place were smaller front wheel drive cars. By the late 1990s the number of large RWD cars had dwindled to a few luxury models and the aging design of the Ford Crown Victoria. While this looks like a success for the management of the market by the government, it had unintended consequences that made it a failure from a fuel economy standpoint.
In the late 1970s the only people who bought trucks were people who needed them for work or pleasure purposes. Enclosed trucks like the IH Scout, Ford Bronco, Chevy Blazer, and AMC’s Jeep Grand Cherokee were niche market vehicles that were typically owned for regular transportation by people who needed the capabilities of a truck for their chosen recreation, be it camping or off-roading.
After the great purge of traditional rear wheel drive GM full-size cars in 1985 (the last automaker to significantly reduce their lineup) to meet the CAFE requirements, people began to discover that these enclosed trucks were the next best thing to the full size station wagons and other large passenger cars that were no longer offered. Sure, there were a couple wagons and sedans still on the market, but they weren’t enough to satisfy the diverse interests of the buying public. Sales began to increase for these rather plain trucks with hose-out vinyl interiors. Detroit took notice. It wasn’t long before these enclosed trucks had everything and more than the finest luxury cars of the 1970s.
The big three had never really learned to build cars smaller than Maverick or Nova very well. Their customers usually didn’t want anything smaller than that. They made attempts with the Pinto, Vega, Omni, and so on but with little success and often dramatic failure. Their internal setup and US regulations prevented them from tapping their European divisions for product with few exceptions. In addition I would not be surprised if their agreements with the UAW hampered the changes required to make these small cars profitably.
The big three were good at making trucks though. This shift in market preference was just what they needed. They made their investments to produce these trucks in large numbers. Fleet fuel economy dropped. Little did the big three know that the shift was not permanent but rather something closer to a false signal like that created by the Federal Reserve manipulating interest rates. The federal government has manipulated the product mix, fuel prices, and interest rates for car loans and created the conditions whereby only an unusually enlightened executive would have grasped what was happening. The money was in trucks and into trucks went the effort. Ford, GM, and Chrysler became dependent on selling light trucks. Once there was no turning back the government’s wars and money creation drove up the price of fuel. Interest rates increased. The market shifted rapidly and the domestic automakers couldn’t shift with it. The bubble burst.
The mal-investment made by the now formerly big three was systematic. That is every automaker did it to one degree or another. Even profitable Porsche created an SUV model. One has to ask, why is it that every automaker to one degree or another shifted resources away from their traditional product lines to build enclosed passenger trucks? We are supposed to believe it was an automaker-driven marketing craze. I don’t believe this. It was driven by a central source that manipulated the market in ways that produced results it could not foresee. That source being the one that is rarely looked at for the consequences of its actions, where someone or something else is always to blame instead, the US central government.
While most look at the mismanagement, the UAW, and other assorted problems that contributed to the current state of affairs in the domestic auto industry, government gets a pass. Had government not desired the power to tell Americans what they were allowed to drive, the automakers would have kept a much more diverse lineup of vehicles. They would have made different decisions. Their product line would have evolved instead of going into a bubble mode. Their large passenger cars would have remained, getting better fuel economy as the market demanded. Their product line would be more like that of their competition instead of heavily weighted to light trucks. The bias would still have been present for larger vehicles, but not to such a degree of dependence.
While CAFE backfired and did more harm to fuel economy than help, it now stands to have led the government to its ultimate goal, the power over what cars are built. It appears that the government will at minimum have veto power over every GM model. Nothing that isn’t politically acceptable is likely to see the light of day from GM again.
GM used to use the government to try and put burdens on its competition. Once it had the capability for daylight running lamps at relatively low cost GM pushed to make them mandatory on vehicles sold in the USA. That effort failed, but imagine a GM owned by the government it is lobbying. How long could Ford survive in a market competing against a company owned by the people that regulate the industry? How long before BMW, Toyota, Honda, and others are forced out of the market and back to their home countries?
I remember laughing at cars built in the Soviet Union and other nations it controlled, the plight of the Cubans rebuilding their 1950s iron over and over again so they wouldn’t have to get a Lada. How long will it be now before Americans have to suffer the same conditions once the government uses the tools it has to eliminate the competition to its auto-manufacturing interests?
This reminds me, I have a lot of auto parts to order while I can still get them.
May 20, 2009
Brent Peterson is a mechanical engineer working in product design and development living in the Chicago suburbs with interests in history and transportation.
Source: Lew Rockwell