Friday, July 20, 2007

Detroit Extinction Watch?

by Tom Bozzo

It's hard to believe, after the recent Senate vote to increase U.S. automobile fuel economy standards, that there might be an uphill fight in the House to incorporate a similar provision in the House energy bill. However, an NYT editorial observes, Michigan's John Dingell remains staunchly opposed (*), as do some other House Democrats. The history of previous attempts to raise the standards supports the Times editors' concern, though on the plus side the Senate vote last month (at 65-27) was not as close as I might have expected.

The ostensible goal for the Democrats is to preserve the Domestic Three's rapidly shrinking auto manufacturing employment. However, it would be laughable to suggest that Michigan's auto employment problem is that too many fuel-efficient, marketable cars are being made there. And I'm sure Dingell et al. are not sitting on super-secret memos to the effect of abundant cheap fuels (whether in the pump price or environmental impact senses) being just around the corner.

The Domestic Three's complaint is that meeting the standards will require enormous investments and changes to their product mixes. This is a lousy argument against the change. By 2020, every model of automobile currently sold in the U.S. will have been substantially redesigned, probably twice, even with the domestics' long product cycles. This would, itself, require lots of investment simply to maintain the status quo. Moreover, GM and Ford both have extensive European operations that already produce far more efficient vehicle mixes. So I doubt that the the true marginal investment really would be that large. In any case, it's been the lack of investment in marketable models while the truck craze was milked, though, that's killing them.

If high fuel prices persist, and "Romani ite domum" is written on the wall in large print, the market will provide more efficient cars. Until those prices reflect the full cost of the fuel, it'll underprovide them to the general detriment. It's more than past time for action.

(*) Apparently Dingell has backed carbon taxation, which some economists would view as doing the Lord's work. Until there's the least chance of enacting a carbon tax, though, it appears to be more a way of maintaining the appearance of environmental realism over the substance thereof.

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Your post appears to assume that a carbon tax is not going to happen. In fact, "putting a price on carbon" is essential in order to reduce U.S. emissions quickly enough to prevent atmospheric concentrations of CO2 from reaching an irreversible tipping point. Carbon taxes and cap-and-trade would both put a price on carbon, with a revenue-neutral carbon tax being far superior for all of the reasons set forth on our Carbon Tax Center web page at

Congressman Stark and McDermott had already introduced legislation to enact a carbon tax. Congressman Dingell has certainly raised the profile of the issue. While we are unlikely to see a carbon tax enacted while President Bush and this Congress are in office, now is the time to lay the foundation for a revenue-neutral carbon tax after the next elections.
Dan, I'm all in favor of carbon taxation, in conjunction with stricter energy efficiency standards. My point is that Dingell isn't doing the environment, or Detroit, a favor by opposing a viable measure in favor of a currently (as you seem to acknowledge) non-viable one.
Life of Brian references make my head hurt.

The question I have is a simple one: given that the Big Three were making virtually nothing on any non-"truck" they built for the past decade, why not either (1) try to find a Competitive Advantage or (2) get out of the market?

It's not as if they weren't making more efficient cars in the European and Asian markets (e.g., the bloody Ford Anglia of HP fame).
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