Many thanks to Nancy Rommelmann for hosting the lively dialogue that inspired this post. Full disclosure, I drive a Ford Explorer but I wish I drove an Audi. And a Maserati. I have three kids, two of whom play travel soccer. Not a week goes by when we don't have at least one sortie where all seven seats are filled. Guess what? Ford made a great vehicle I wanted at a price I could afford. This is how the free market works. I own a Ducati motorcyle and drove a Triumph TR6 when I met Lola. Both of those vehicles have about as much utility to me as a Prius. Which is to say, almost none.
A lot has been written about bailing out the big three, forcing them to re-structure, build green cars and become viable companies. Here's the problem with that argument. You can't build green cars AND be a viable company without enormous taxpayer subsidies or artificially high gasoline prices. Why, because people don't want or can't afford green cars as they exist today. The problem with tieing federal funds to manufacturing mandates is that they force companies to respond not to public demand but to the EPA and their flunkies in Congress. Wait a minute, you say. Priui were flying out of the dealerships last year. Yes, but so were Toll Brothers houses. Both were an anomoly driven by an overheated global economy. C'mon, did oil suddenly become scarce in 2006? Was everybody in China really going to have two cars in the garage? I don't think so. Well, you ask, now that gas is $1.77 in New Jersey why aren't F-150's flying out of the dealerships? You ask a lot of questions but that one is easy. Because almost no one can get financing and those that can are waiting for prices to come down further (ah, deflation knocks at the door). Sure, gasoline prices will probably go up a little when demand increases (let us pray) but it won't breach $4.00 a gallon anytime soon unless the do-gooders in Congress decide to "fix" it. More on that later.
De-regulation has taken its hits lately. Ironically, the financial industry is one of the most regulated businesses in America. The other one is the auto industry. OK, I think cars should have seat belts. In fact, I wouldn't buy one that didn't. But that's the point. We didn't need the government or Ralph Nader to tell us to put seat belts in cars. Remember when everyone said we needed airbags in every car right now? The car companies did a great job responding to the public clamor and congressional mandate creating more complex and expensive cars for the public. Then we found out that airbags kill small people. Oops. But safety features and personal choice can co-exist and I point to side airbags as an example. They are not mandated but people who want them and can afford them buy cars with them as an option. But let us set aside safety for a moment (as I am often wont to do) and talk about one of the more insidious government intrusions that has hamstrung the auto makers for 30 years. Yes, the dreaded CAFE standards. Corporate Average Fuel Economy as mandated by Congress in 1975 prevented auto makers from making only the highly profitable vehicles that Americans wanted to buy, SUV's and Mustangs because the standards required a fleet average fuel economy well above those of the desirable vehicles. In order to maintain a high domestic fleet average (the UAW insisted that foreign Fords could not be used in the harmonic mean calculation)the automaker had to offset the gas guzzlers with unprofitable Escorts and Fiestas. Remember that wages, healthcare costs, real estate, robots and all the other inputs cost the same whether you're building a high profit vehicle or a loss leader. Sure, the automakers might have been caught out when oil skyrocketed, but if they had been unfettered by Congressional mandates they would have had half the number of facilities (because the UAW won't let you build Explorers and Escorts in the same plant) and been sitting on a pile of cash. Now I'm not here to bash the UAW, they are looking out for their members and, let's face it, American workers are the most productive in the world. They've taken their licks and are going to have to play ball for the survival of the auto industry. I have faith that they will. But when I hear that any bailout will be contingent on yet more Congressional mandates for "greenness" I want to scream. That's how we got here in the first place. If Congress insists on dictating the way cars are built then they need to stop bitching about paying for it and just pony up the cash. Because the only way green cars can be "sustainable" is to artificially inflate the price of gas to European levels and the only way that could happen is with a filibuster-proof Democratic Congress, a Democrat President and Henry Waxman as head of the Energy and Commerce committee. Uh oh.