Economies of Scale in Compliance: Auto Industry
By David Henderson
They [the Department of Transportation and the Environmental Protection Agency] will swoop in with turgid – and then threatening – demands that you sell no cars to the public (no matter how much the public may want those cars) until those cars have complied with every line-item regulation in their repertoire of regulations and codes. Oh, and not just that. Even if by some miracle your new car produces less pollution than a new Prius – even if it is more crashworthy than a new Mercedes S-Class – you will still be required to demonstrate it to their satisfaction. Which if you’re not familiar with the way a car company complies with federal ukase involves (for example) destroying dozens of brand-new cars in various types of crash tests to placate Uncle Sam’s minions.
And who can afford to destroy a dozen perfectly good brand-new cars? A major automaker can – but not you.
Once you grasp the nature of this symbiotic relationship you will understand why there hasn’t been a single successful new car company (outside of politically correct and wholly government-subsidized efforts such as Tesla Motors, producer of the $100k electric Edsel) in decades – and a winnowing of the previously existing herd down to a handful of enormous cartels that are (drum roll, please) “too big too fail.”
This is from Eric Peters, “Why the Majors Love Mandates.” It’s an instance of a more general point that I call “economies of scale in compliance.” I wrote about it here and in my Ph.D. dissertation on why large unionized coal mining companies lobbied for the 1966 and 1969 coal mine safety laws.