Marginal Utility

by Tom Bozzo

While everyone is unapologetically blogging about whatever it is they feel like, I might as well note these items from this week's car news:

1. Senate rejects latest proposal to increase fuel economy standards

2. Chrysler repositions PT Cruiser as a small car as part of effort to jump-start sales

3. What a deal! Maybach to offer $50,000 discounts for dealer demos, resort vehicles

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1. In grinding the sausage for its version of the "energy" bill, the Senate last week rejected a measure proposed by Richard Durbin (n.b.: comments with ad hominem attacks on Durbin will be summarily deleted) that would have increased CAFE fuel economy standards to 40 MPG for cars and 27.5 MPG for "light trucks" by a larger margin than a similar proposal in 2002. The Automotive News lede does not miss the irony:

Oil is $60 a barrel. Gasoline costs nearly $3 a gallon in some places. At the same time, advocates of higher federal fuel economy standards are losing ground.

A measure that did pass gives NHTSA authority to raise the standards, but forces an eleven-point test intended to thwart the use of that authority. But consider the criteria, via the American Highway Users Alliance [Editorial comments in blue]:

1. Technological feasibility; [Check. You can get a 37 MPG Accord now; then there are the Eurodiesels.]
2. Economic Practicability; [Check. The latest diesels, in particular, are not much of an imposition.]
3. The effect of other government motor vehicle standards on fuel economy; [Presumably, this is an injunction against meeting the standards with a New Trabi, but not a serious issue considering #1 and #2.]
4. The need of the nation to conserve energy; [Duh.]
5. The desirability of reducing U.S. dependency on foreign oil; [Ditto.]
6. The effects of fuel economy standards on motor vehicle safety, and passenger safety; [Seems somewhat cumulative of #3, but if not, see comment on #3.]
7. The effects of increased fuel economy on air quality; [Not likely to hurt, though diesels would need particulate filters.]
8. The adverse effects of increased CAFE standards on the competitiveness of U.S. manufacturers; [A better question is the adverse effects on U.S. manufacturers' competitiveness from the strategy of burning incense — or the MNF — to the oil gods in hopes that we'll see $30 oil again.]
9. The effects of CAFE Standards on U.S. employment; [See #8.]
10. The cost and lead time required for the introductions of new technologies; [I want an A8 4.2 TDI now, damnit!]
11. The potential for advanced hybrid and fuel cell technologies. [Can't make increased standards harder to achieve, presumably.]

Part of me doesn't feel too bad about the CAFE vote, except that it's the only finger that can be put in the dike. Given my occasional irrational belief in consumers' willingness to respond to price incentives, I'd rather see a moderately stiff but revenue neutral gas tax (i.e., with the proceeds of the tax refunded to consumers to offset the hardship of higher pump prices), increasing over time, to get people used to the idea of expensive petroleum-based fuels without an automotive-design mandate. However, this idea has as much chance of being enacted as Bush has a chance of being impeached by the Republican congress. A boy can dream, though.

2. The PT Cruiser article highlights one of the fundamental flaws of CAFE: manufacturers have trashed the regulations' car/light truck distinction to the point of near-meaninglessness. The PT Cruiser, when it originally came to market, was at the vanguard of the effort to game the standards by classifying car-based vehicles as light trucks. That has accelerated as the SUV market has become increasingly dominated by relatively small models derived from cars' mechanical platforms, and arguably reached a pinnacle when a few mostly cosmetic changes to the Subaru Outback allowed the current model to shift into truck-land — so with much less fuel-efficient engines dominating its product mix, higher-trim Outbacks wouldn't weigh on its car fuel economy average.

The PT Cruiser is, in fact, derived from the mechanicals of the Neon economy car. With Truckageddon in full swing, the latest marketing innovation is to market the PT Cruiser as a fuel-efficient small wagon-like car. I expect it will stay a small truck for CAFE purposes to offset gas-guzzling Hemi-equipped Dodge trucks.

3. Meanwhile, if it wasn't obvious, the rich are under-taxed!

Maybach (Flash-intensive site) is the Mercedes-Benz ultra-luxury brand, offering the Maybach 57 ($327,500) and the Maybach 62 ($377,500) — same sausage, different length — intended to compete with the likes of Rolls-Royce. (The Maybach has also contributed some questionable styling details to the forthcoming Mercedes S-Class.) Maybach sales have been a disappointment so far. It turns out that part of the problem is believed to be the marketing model.

Part of what separates the Maybach from V-12 S-Class models at half the price is that the Maybach is quasi-bespoke, and buyers are expected to select from a broad array of colors and interior finishes as if they were fitting out an airplane. However, this apparently turns out to thwart a class of potential Maybach customers that happens to have at least $327,500 burning one or more holes in their pockets and wants the "immediate gratification" of buying one off the lot. Those people end up buying dealer demonstrators or cars purchased by hotels to entertain high rollers. I guess it's good to be King.

Seasonality Addendum: The Maybach story notes that whereas 244 Maybachs were sold in 2004, only 48 of those were sold in the first five months of the year. That seems to provide an answer to what one does with one's year-end bonus when splurging on a $400/head dinner isn't enough.

Second Addendum: In comments, Ken corrects me on the timing of certain year-end bonus payments. Maybe I should be thinking about the timing of NBA or NFL signing bonuses.