Sunday, August 19, 2007

While I Was Out: The Ongoing Detroit Extinction Watch

by Tom Bozzo

Just before I saw this post by Ken, my brother told me that he'd picked up some Ford stock on the notions that it was relatively cheap at around $8 and that CEO Alan Mulally might bring half a clue to the place. He'd taken a similar gamble on Apple shortly after Steve Jobs's return, though — sadly for his future progeny — he unloaded his position with a gain, but one of a pre-iPod magnitude.

I mostly agreed with my brother, insofar as I'd been under the impression that Mulally's inclination was to raid the company's European product lines to field more marketable fuel-efficient cars with a low incremental investment. I'd be surprised if all of the three failed, and anyway between John Snow and Bob Nardelli, Cerberus-Chrysler looks to have cornered the market in reverse-alchemists.

Badmouthing the U.S. CAFE fuel economy standards doesn't necessarily change anything on that front, though it undercuts the only-Nixon-can-go-to-China credentials Mulally earned by admitting that global warming just might be real. [*] I suppose when you become a "Detroit Three" [**] executive, you get a chip implanted that automates the process.

Meanwhile, the automakers have been staging rallies trying to evince grassroots support for holding back the increase in automobile fuel efficiency standards recently passed by a large majority in the Senate. The Detroit News reported on an event in Chicago:
Workers held pre-printed signs, including "Don't be Fuelish. Save our Jobs!"
Those of a certain age will recognize that some PR firm has inverted the meaning of the Ad Council slogan from the 1973 oil crisis into "please waste fuel." [***] Meanwhile, the automakers' ad agencies are desperately trying to sell such fuel economy as the Three's products offer. I can't help but think that the UAW's efforts would be better spent trying to organize foreign makers' U.S. plants.

Ken stole much of my potential thunder by re-making our long-standing point that only a moron would think that the Detroit Three's problem these days is that they're building too few trucks. One could ask why these workers weren't brandishing signs at their employers' Michigan HQs reading "Retool our factories. Save our jobs!"

For a lot of the anti-CAFE protesters, that is how their jobs will be saved. The effort, after all, is not to kill changes to CAFE outright, but rather to limit the changes to a less-aggressive set of standards that go a bit easier on trucks. I expect harsher discipline from The Market, since someone will have to discover a lot of cheaply extractable oil and/or keep the nascent Chinese middle classes out of cars for debates over a couple MPG in the 2020s not to look, in retrospect, like so much myopic wanking.

[*] On the subject of fuel taxation, Mulally's position is a bit more nuanced than Ken's post suggested:
"I just think it's so important that we all join in this debate and we really decide what we want to do about energy security and global warming," Mulally said "A piece of that could be a tax."
I read that as trying (like Rep. Dingell) not to look obstructionist, and maybe even suckering a few Sensible Economists who like the idea of a gas tax and hate CAFE, by making a politically untenable policy the enemy of a good-enough one. Otherwise, Ken is right to imply that Mulally's policy preference amounts to advocating boiling in olive oil over boiling in canola oil.

[**] Now that they aren't the "Big Three," it must be a challenge to come up with a new term. Even "Detroit Three" has its issues, or at least had a big one under German ownership of Chrysler.

[***] While this is a deliberate inversion, I think some blogiversal terms of art would work better with different meanings. "Idiotarian," for instance, should be the term that describes economists to whom Dani Rodrik's "first-best" moniker gives too much credit (it's a secondary meaning, as indicated here, but seems mainly intended as a term of abuse directed at the left). Or take "Bush Derangement Syndrome," which should describe what Greg Mankiw must be suffering to carry water for Bushonomics even after he's no longer being paid to do so.


I have to agree with the position that the proposed CAFE standards will negatively effect those car companies with lineups that focus on trucks and SUVs. The financial impact of universal standards without considering a separation between cars and trucks has the potential to be very costly to both manufacturers and consumers and should be considered. I also agree that while there is some merit in a carbon tax it is far too unpopular and has a very small chance of any success. I do some with the auto alliance and really think the compromise should be talked about more and that Mulally has some points worth considering.
Unless Dingell can keep the House from even considering CAFE changes, at least the compromise will be enacted. I don't agree that this will be especially costly to consumers. Lots of cars with more-than-adequate space and performance can or could meet or exceed the "strict" Senate-passed standards with existing technology.

As for Mullally's comments on the supposedly perverse effects of CAFE, the real causes of increased vehicle mileage and fuel consumption are sprawl-promoting land use policies and vehicle choices encouraged by (formerly) cheap fuel. I don't think there's a legitimate case to be made that the first-order effects of tighter CAFE standards lead to higher fuel consumption.
Tom, I've also read that because of American culture, when we have more fuel efficient cars or lower gas prices we tend to drive more and thus negating any desired effect of decreased oil dependence or use. I honestly believe that unless we change the way consumers drive (which CAFE will not do) we will not have positive change. People speculate a carbon tax would do that - but like I said before its just too unpopular a solution. I also do think that there will be a financial impact on consumers if the strict form of CAFE standards go through and I believe even the UAW has the same position now too.
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