Detroit hates CAFE standards

From the WSJ's Energy Roundup:

As expected, executives from General Motors, Ford, DaimlerChrysler  and Toyota went to Capitol Hill today to sing their song of woe about CAFE fuel-effiency standards. They were joined by UAW President Ron Gettelfinger, who argued that auto makers’ union workers would bear the heavy cost — maybe $100 billion — of implementing higher fuel standards.

The long run demand elasticity for automobiles is probably inelastic (hmmm, not many substitutes, but a large share of the budget; a quick Google search didn't find much better than this ... I better duck my head on this assertion) which means that much of the higher cost of producing automobiles with stricter CAFE standards can be passed onto consumers.

I didn't notice the auto execs mentioning a gas tax which is more efficient than CAFE standards and would not affect the cost of producing cars ... except for the remodeling costs as consumers prefer slimmer, sleeker, younger models.

Comments

[Duncan Brown]

In the category of “When Pigs Fly,” a March 5 editorial in the Automotive News (kind of a house organ of the once-Big Three) says it’s time to look at a carbon tax on gasoline (which is a more efficient and less cumbersome way to reduce CO2 emissions than raising CAFÉ standards).

HEADLINE: A carbon tax on gasoline? It's worth a look

"As a rule, using taxation to alter consumer behavior is bad policy that smacks of social engineering. But given the concerns about CO2 contributing to climate change and the need for the nation to reduce its dependence on imported oil, this is an auspicious time to consider a so-called carbon tax."

[odograph]

I don't think there is actually a "higher cost of producing automobiles with stricter CAFE standards".

The problem is that while simple inexpensive ( and logical ;-) cars like Honda Civic or Toyota Corolla fly past any proposed CAFE standard ... the bigger, faster, more luxurious cars that we all love do not.

It's simple physics (mass and acceleration).

Everybody knows how to make Civic/Corolla clones, and to make them cheaply.

But isn't this CAFE thing really about a game of pretend?

We can pretend that Detroit has a secret way to make a Tahoe act like a Corolla (and that there is a "CAFE cost" to that). We can pretend that Detroit can be force to make those cars (at some reasonable cost).

But why don't we stop pretending?

If we are serious about improving national fuel economy we can slap fees on gas hogs one way or another. I favor "gas guzzler" taxes on the window sticker. They are one of the things that worked in the 70s/80s.

... but we aren't serious and we pretend.

But please guys, as serious economists, rise above the game of pretend and look at what auto tech really offers us (and not in our dreams).

The CAFE game is to somehow burden Detroit in

[odograph]

Sorry about the dangling sentence fragment, the thought was "somehow burden Detroit to make them make consumers shift down to smaller cars." ... while of course pretending that higher MPG will not impact consumer choice.

[John Whitehead]

Odo,

A general rule in economics is that any regulatory restriction will increase the costs of production. In this case, strict CAFE standards is likely a short run cost. In the long run if we switch to smaller cars the cost of producing a four wheel vehicle will be lower.

[odograph]

Oh, I got immediately that you were making a general economic point.

But I think you really have to reach to make it apply, and doing so I think you miss a lot of the story.

I'm sure you are aware of the position Detroit finds themselves in, and the reasons they think they cannot compete in Civic/Corolla class cars, yes?

Maybe the astute reader will find that in the allusion "strict CAFE standards is likely a short run cost" ... yeah right, Ford and GM go broke without SUV profit margins.

Let's make that explicit. It is not a cost in making the small cars. It is the missing profit in not making the large cars.

[odograph]

The sentence fragment I'm having pedantic trouble with is this one:

"[...] which means that much of the higher cost of producing automobiles with stricter CAFE standards can be passed onto consumers."

You know right, that the _cheapest_ cars in America already pass those standards?