Post Number: 7366
|Posted on Saturday, May 12, 2007 - 10:26 am: || |
CAFE is not the cure for what ails American car makers.
Saturday, May 12, 2007 12:01 a.m. WSJ - OpinionJournal.com
Barack Obama blew into Detroit on Monday, where he offered a tart indictment of "the tyranny of oil" and, by extension, the U.S. automotive industry.
"For years, while foreign competitors were investing in more fuel-efficient technology for their vehicles, American auto makers were spending their time investing in bigger, faster cars," he declared. "And whenever an attempt was made to raise our fuel-efficiency standards, the auto companies would lobby furiously against it, spending millions to prevent the very reform that could've saved their industry." Where to begin?
The Democratic Presidential candidate was extolling Corporate Average Fuel Economy (CAFE) standards, which require auto makers to produce cars that get a certain mileage across their entire fleet. These mandates currently stand at 27.5 miles per gallon for passenger vehicles and 22.5 miles to the gallon for "light trucks" like minivans and SUVs. They were enacted in 1975 on the heels of the Arab oil embargo, and raising them has now become an all-purpose political gesture toward reducing carbon emissions and dependence on foreign oil.
Mr. Obama would ratchet up CAFE standards by 4% a year beginning in 2009, or about one mile per gallon per year. Congressional Democrats are pushing legislation that would raise them to 35 miles per gallon by 2020, and the Bush Administration is hawking its own, more modest plan as well. This is all the triumph of politics over experience.
Since 1974, domestic fuel economy has risen by about 60%. The gains initially came through sharp reductions in the size and weight of cars; think of the Pinto or Chevette. Since the 1990s, improvements have been driven by technological advances. But over the same period, oil imports have increased; Americans use more gasoline than ever and hence emit more as well.
That's because the indirect tax of mileage standards is an exceptionally inefficient way to influence consumption. CAFE doesn't affect how many vehicles are on the road (a figure that keeps going up). And by making cars and trucks more fuel-efficient, it may encourage people to drive more. If you get more miles to the gallon, then driving becomes cheaper, so driving demand goes up and offsets any overall efficiency gains.
Designing high mileage vehicles is relatively easy--they're all over Europe--and such cars have been introduced to the American market in the past. Consumers have plenty of such options to choose from now. But aside from fads like the Prius, Americans have proved unwilling to buy them. The miles-per-gallon advances over the last 30 years have translated into bigger, more powerful cars with more features. These are the vehicles Americans actually want.
Not without reason, either: There is a tradeoff between safety and efficiency. The National Academy of Sciences concluded that CAFE standards contributed to as many as 3,200 additional fatalities each year, because downsized cars are less safe in accidents. Other studies from the Brookings Institution and the Competitive Enterprise Institute put that number significantly higher.
So much for Senator Obama's claim that fuel efficiency is the savior of GM, Chrysler and Ford. Their problems, rather, are due to public perceptions of quality and to legacy labor costs. Pensions and health care cost Detroit an estimated $1,500 or more per vehicle than foreign competitors, and raising CAFE standards won't do anything about that. Mr. Obama generously offered to let the government pick up 10% of the Big Three's health-care tab in exchange for assurances on fuel economy--which means putting taxpayers on the hook for union and management mistakes going back 50 years.
CAFE would only add to that burden on Detroit. The Congressional Budget Office estimates that raising CAFE standards by 3.8 miles per gallon would cost $3.6 billion per year, which would reduce consumption by 10% over 15 years. The National Highway Traffic Safety Administration estimates this would add $3,000 to $5,000 to the price of an American vehicle. The United Auto Workers says it could cost the jobs of 17,000 auto workers and 50,000 auto-parts workers.
What exactly would that get us, in terms of reducing emissions or oil use? Almost nothing. Passenger vehicles account for about 20% of U.S. carbon dioxide emissions; a 10% cut of 20% is just 2%. This would not make a huge difference in domestic oil consumption either, because passenger vehicles account for 40% of U.S. oil demand; so a 10% cut reduces total oil consumption by 4%. These reductions are negligible compared to global emissions and energy demand.
Senator Obama's Detroit speech was cast in the press as bold truth-telling. Yet the quickest and most efficient way to deter gasoline consumption, if that is his real objective, is not CAFE standards, but higher gasoline prices--i.e., through a carbon tax. Consumers clearly don't want to pay more for gas, however, so Senator Obama wasn't so bold or truth-telling as to suggest that. It seems he has his eye on the voter market more than the car market.
Post Number: 841
|Posted on Saturday, May 12, 2007 - 10:34 am: || |
Excellent article, thanks for posting it.
Post Number: 1171
|Posted on Saturday, May 12, 2007 - 10:50 am: || |
"Mr. Obama generously offered to let the government pick up 10% of the Big Three's health-care tab in exchange for assurances on fuel economy"
Interesting idea...I like it...maybe Obama isn't so bad afterall
Post Number: 381
|Posted on Saturday, May 12, 2007 - 11:34 am: || |
WSJ is formally endorsing a carbon tax?
Post Number: 7376
|Posted on Saturday, May 12, 2007 - 11:38 am: || |
Good question, Zephyr - definitely out of character for the WSJ. I think the key is, if you really want to cut consumption, right now, put a huge tax on it. Is it right? No. Will it cut consumption, and have alot of other repercussions as well? Yes.
Post Number: 5319
|Posted on Saturday, May 12, 2007 - 12:22 pm: || |
Good article Karl. Thanks. Pandering to Detroit automakers ain't going to solve the gas, auto, or pollution crises.
Until urban people design their cities with mass transit options, ain't nuthin' going to change.
jjaba read on The Forum that even pissant St. Louis is coming back. They have light rail. Detroit, get a grip.
Post Number: 3854
|Posted on Saturday, May 12, 2007 - 12:28 pm: || |
I liked his take on sharply raising the CAFE standards directly in the face of the Big [formerly anyway] Three - something even Michigan Dem powerhouses try to remain mum on. This along with conservation is the simplest way to break the back of high oil prices, the benefits of which will cover any R & D costs.
The whining about the cost of meeting the higher standards, raising the price of an 'American automobile' [<-whatever that is since every car is made of products from everywhere] and, ergo, losing jobs is absurd. There is no mention that all producers would be affected and face the same challenges. In the end we both want and need cars. Whoever figures out how to that the best under whatever conditions or fuels will make the most money. Ask Henry Ford. Ask Toyota. Stop whining and get to work.
He still couldn't resist throwing them a bone in the with the health cost help. Better than that is national health plan which would remove much more burden from business while making sure honest hardworking people who get laid off could still get medical care.
He didn't strike out with that speech, but did hit a feeble groundout to the pitcher.
Post Number: 22
|Posted on Saturday, May 12, 2007 - 12:37 pm: || |
When did a gas tax become a carbon tax? Because i bet it wont include natural gas or propane for home use.
CAFE increases will effect lots of other industries as well. As large Pickups and SUV go away the impact on snowmobile sales, camper sales and everything else that can be pulled by a large SUV will be dramatic.
A gas tax is the best solution - it allows each consumer to make their choice. But a gas tax is political suicide - so we will only get more half a$$ government programs that make the politicians feel good but do not address the original problem.
Post Number: 23
|Posted on Saturday, May 12, 2007 - 12:54 pm: || |
Feel free to take a quick watch of Obama's speech to the DEC.
Part 1: http://link.brightcove.com/ser vices/link/bcpid416308493/bcli d769318738/bctid876416867
Part 2: http://link.brightcove.com/ser vices/link/bcpid416308493/bcli d769318738/bctid823354897
For no extra charge, you also get to see our Mayor appearing bored, "reading" a few questions, and generally appear annoyed at Obama's longwindedness. And the joy of watching a sometimes stunned crowd choke through polite applause as they realize that Obama trotted into town to spread some truth instead of kissing their collective asses.
Post Number: 2129
|Posted on Saturday, May 12, 2007 - 2:01 pm: || |
watching a sometimes stunned crowd choke through polite applause as they realize that Obama trotted into town to spread some truth instead of kissing their collective asses
More likely stunned that, as promising a candidate as he seemed to be, Obama obviously has little clue about the nature and severity of the industry's, and country's, economic situation.
Post Number: 7385
|Posted on Saturday, May 12, 2007 - 3:13 pm: || |
Well said, Lilpup.
Post Number: 1435
|Posted on Sunday, May 13, 2007 - 1:20 am: || |
Huh. Maybe this should roll into the other thread about 35mpg cars.
Post Number: 882
|Posted on Tuesday, May 15, 2007 - 8:27 pm: || |
Wow. What a great candidate for Southeast Michigan. I didn't think the Democratic party could do worse than Al Gore, but I was wrong.
what kills me, is here's a guy whose going to gut our industry, and the Dems still keep somehow blaming George Bush for Detroit's problems.
Post Number: 78
|Posted on Tuesday, May 15, 2007 - 9:10 pm: || |
Yes- After years of lobbying away higher CAFE standards, Dingell being the savior of the American Auto Industry, and beating back federal regulators and gas now over $3 a gallon, I am amazed at just how much prosperity low mileage vehicles have brought us, the Big 3, and the region as whole! GM, Ford and Chrysler are just flush with cash.
Here is repost- on my previous comment on this topic.
Here is some data to chew on ( I got this privately from an email from an investment analyst friend at a large Wall Street firm; he daily steers billions worth of investments): American use of crude oil is 25 barrels per person per year (that's about 1,100 gallons). In China, that figure is 1.5 barrel per capita annually and in India it's 1 barrel. Those economies grow 10% per year or better while ours grows about 1.5% (in terms of petroleum use). Total worldwide oil demand is 85 million barrels per day currently. If a person in China used as much oil as an American, Chinese demand alone would be 180 million barrels per day. (We have not even talked about India whose population now exceeds 1 billion.) What would the price of oil have to go to in order to induce oil companies/OPEC to develop enough to supply that? (Hint: a lot, and it is not really even possible, or sustainable in the long term) Last year China alone increased its oil consumption a whooping 20%! They are now the second largest oil consuming nation.
I am not worried about $4 a gallon gas, I am worried about $8 a gallon gas by 2012, which is very realistic. So let me again ask those that "Love their big V-8's" how much would you love it if it cost you $160 to fill it up? I doubt few Americans want to spend $640 per month for gas for 1 vehicle. How about $1280 for two similar cars?
Don't you find it odd, that Bush (Today), an oil-man, and certainly not a champion of increased federal regulation even realizes the situation we are in, and is also calling for higher CAFE standards, and alternative fuel, as Poof! All that Iraqi oil were were supposed to liberate, and make life better again, never quite made it to market. When it does, China will be there with plenty of cash to pay for it. In the mean time we'll be paying them back all the money they loaned us to fight the war. (Pretty slick huh?)
And E-85 is probably the worst possible solution on so many levels. (That is another subject all together).
So for all the nay sayers- just think If during the Clinton years, they would have pushed increased CAFE standards, and swallowing the bitter pill then when there were lots of profits, in the early '90's, American cars would have gotten better mileage, and probably sold more vehicles, we would have decreased our fuel demand, and therefore fuel cost would certainly be lower than what we are paying now. While you might make the case the CAFE is bad for detroit, I would say the opposite is true. Not having higher CAFE standards has put our whole region's economy in the shitter. The number of foreclosures,unemployment, and plant closures alone, seem to indicate this reality. If you think things are bad now, do nothing about mileage, and wait three years. The "Market" will correct itself by putting us all in the poor house. Once again the Japanese saw this coming, and Detroit yet again got caught with its pants down. Although they too are getting their asses burned in truck and SUV sales. (Sales for Nissan, and Toyota gas guzzlers have also tanked) . Just wait 'till the May figures come out! It won't be pretty, as this will be the first month to reflect $3 a gallon prices. We have nothing to loose, and everything to gain by higher CAFE standards, and a real push for alternative fuel sources. Economics 101: you pay now, or dearly more later. We in Michigan have in the last five years, already paid dearly, for putting this off.
As well, I don't get the brainless mentality that the government will hold a gun to your head, and we'll all be forced to drive econo-boxes. Do nothing, and that will be all you can afford to drive. With forcing higher CAFE standards, believe me- Ingenuity will find away for people to drive large vehicles AND get good mileage. It is possible. But if an organization is not forced to change; it won't, or it will until it is too late. History has proven this too many times.
As I did study economics, and understand full well that the government, and to a lesser extent corporations, know that politicians and executives don't have the balls to make tough policy decisions that will be unpopular in a timely manor, or leave the problem for the incoming administration, I decided to hedge my bet, and invest in Canadian oil-stocks that are immune to hurricanes and are not connected to Middle-Eastern countries that hate us, to offset what I pay at the pump. Boy am I glad I did, as the returns have been nothing short of fantastic! Guess what my investment analyst friend at a large Wall Street firm did? He followed his own advice, and is living large too! Incidentally he drives a fuel efficient car. So I tip my hat to all the Hummer drivers out there- See ya at the pump-CHUMP! And please- Fill'er up!
As a follow up- I see the big one-day Gas Boycott today worked really well. We gave the oil companies a vacation day, so they would have the time count up all the profits they have made. What did it go up today, at least a dime? I am sure my buddy can't wait for those dividend checks to roll in.
Post Number: 26
|Posted on Tuesday, May 15, 2007 - 9:56 pm: || |
Good points Cinderpath.
Is anyone else here in favor of a extra tax on gas and/or cars to pay for our oil-driven military adventures?