The Auto Boom: Healthier Economy or CAFE?
By David Henderson
In a post yesterday, Mark J. Perry writes:
Based on new vehicle sales during the first 16 selling days of this month, J.D. Power and Associates is predicting sales during the full month of August to increase by 20% over last year and reach the highest monthly sales of new vehicles since early 2008, more than four and one-half years ago.
Mark speculates that it could be due to the economic recovery and argues that it is evidence against the idea that there will be a dip into another recession.
Mark could well be right. But there’s one other factor that could be causing the boom: intertemporal substitution due to the coming CAFE regulations. Here’s what I wrote in a 2009 post titled, “The Coming Auto Boom:”
Under the Obama proposal, which is not yet a fait accompli, the new standards would kick in fully in 2016. It is unclear how they would rise between now and 2016 but it must be the case that they would be much less stringent in 2010 than they would be at their peak in 2016. The standards will cause cars to be smaller, less powerful, less safe, and more expensive. So what will consumers, who have shown what they think of these cars, do? I predict that if anything like Obama’s standards get implemented, consumers will start buying powerful cars and trucks at a higher rate in the next few years. Watch for the coming auto boom. And then, of course, as the standards tighten, a major auto bust.