Jenkins on CAFE and GM
By David Henderson
Holman Jenkins has hit a home run with his analysis in today’s Wall Street Journal of the CAFE (Corporate Average Fuel Economy) mess. It’s titled “GM Faces Its Own Regulatory Cliff.” I’ve written about this here, here, here, and here.
The most surprising thing about a new House Oversight Committee report on the drafting of the Obama administration fuel-economy targets is the spittle figuratively flying off every page. What exactly did the drafters–including the committee’s GOP chairman, the relentless Darrell Issa–expect?
That the administration’s 54.5 miles per gallon mandate for 2025 was based on science and engineering, rather than a quest for an impressive-sounding “headline number?”
That the mandate wouldn’t be rife with “flexibility factor” fudge to encourage car makers to subsidize money-losing electric cars to fulfill a throwaway line in an Obama speech? (NPR, calling a spade and spade, said the mileage rules were an “electric vehicle mandate.”)
As the Issa report makes clear, the fuel-mileage negotiations were run out of the White House’s hip pocket, in defiance of the Administrative Procedure Act, the Federal Advisory Committee Act and the Negotiated Rulemaking Act, which are supposed to keep the regulatory state honest. Five minutes after Mr. Obama leaves town at the end of a second term, a “midterm review” will revisit whether the impractical out-year targets are, you know, impractical.
A perfectly good mechanism already exists to help Americans decide which cars to buy and how highly to value fuel efficiency. It’s called the price of gasoline. Not well-remembered nowadays, the U.S. began regulating fuel efficiency only when it denied itself this useful mechanism during a disastrous experiment with gasoline price controls in the 1970s. The corporate average fuel economy rules (aka CAFE), though now fully institutionalized, stopped making sense as soon we stopped trying to fix the price of gasoline below market levels.
Mr. Woodhill dwelled on the shortcomings of the 2013 Chevy Malibu, a car that goes up against the Accord, Camry, VW Passat and a near-infinity of others in the crowded market for family sedans. But the real reason to worry about GM is that it’s making a Malibu at all. No logic under the sun, or under Harvard Business School, tells a company to play to its weakness, to prefer low-margin opportunities to high-margin-opportunities, to plan and execute large investments designed to lose money.
Detroit’s labor costs, brand aura and design knack long ago should have told GM to focus on vehicles with low labor content relative to price and profit margin, such as pickups and SUVs. It’s only because of CAFE that GM invests billions in small-car technology without payback, including the electric Chevy Volt. It’s only because of CAFE that GM saddled itself with the money pit known as Opel, to keep up with small-car technology and markets in Europe.