55 MPG Is Going To Cost Us

Recently by Eric Peters: Why Won't They Leave Us Alone?

It’s fortunate for the car industry that the government regards it as “too big to fail” – because it’s going to fail again. Because of the government.

This will be third time, actually.

The first time was back in the late 1970s, when Chrysler rolled over like a mortally wounded battleship – to a great extent because it wasn’t able to turn a profit selling the cars it had anticipated the market would want – but was stuck trying to sell cars the government told Chrysler it wanted. Cars that met the first round of federal Corporate Average Fuel Economy (CAFE) standards, which stipulated 27.5 MPG at a time when the typical American car was as large as the current-era’s largest cars, with a big V-8 under the hood instead of something Toyota Corolla-sized, with a four under the hood. The Japanese at that time made nothing but small, four-cylinder cars – so Uncle handed Toyota, Datsun (Nissan now) and Honda an artificial leg up in the market – while kicking Chrysler, et al, in the soft parts.

It’s true the American cars of that time were not of primo quality. And it’s true the first round of Japanese imports were also just good little cars that sold on the merits. But it’s also just as true that CAFE imposed ruinous costs on the domestics, who were forced to prematurely retire entire vehicle platforms (and engines) long before the investment in designing, tooling and so on had been amortized (paid off) over the course of these vehicles’ otherwise natural life cycle. It almost killed Chrysler – which was (and still is) the weakest of the Big Three, with fewer resources to fall back on. But it also hurt GM and Ford.

Arguably, they never fully recovered – and staggered through the ’80s and into the ’90s, with too many brands (GM, especially) and a business model that didn’t mesh with the realities of the market – the government manipulated market. CAFE – the original law – provided an artificial incentive to mass produce the kinds of vehicles GM, Ford and Chrysler had been building back in the ’70s – big, heavy, with powerful V-8s – only now they rode higher off the ground and were marketed as “SUVs” – which were not required to meet the (much stricter) 27.5 MPG CAFE standard for passenger cars. For “light trucks, the CAFE standard was 22.5 MPG. But when the real estate bubble popped and Wall Street collapsed in ’08 and gas prices suddenly soared to $4 a gallon, GM, Ford and Chrysler were left holding the bag.


Actually, American taxpayers were left holding the bag – for the subsequent bail-out of these “too big to fail” companies, who found themselves in the economically impossible position of trying to please their customers and placate the government at the same time – and turn a profit doing it. This dynamic has been getting worse and worse ever since the first major interferences in the car market happened in the late 1960s.

Well, the stage has been set for what may prove to be the final implosion of the car industry. Caesar – oops, President Obama – has “finalized” his decision that CAFE will be upticked from the merely outrageous (by economic and engineering standards) 35.5 MPG in 2016 to the economically catastrophic 55 MPG – average – by model year 2025. (See here for Caesar’s decree.)

The Great Law Giver – who apparently also holds the title of Chief Engineer – saith this will “save Americans $8,000 a year.” He does not telleth them, of course, what it will cost.

Some perspective:

There are exactly two 2013 model non-hybrid cars on the market that meet – just barely, or not quite – the pending 35.5 MPG CAFE edict that goes into effect only three years from now (and that’s only two short model years from now): The Scion iQ (37 MPG; see here for an in-depth story about it ) and the Smart car (36 MPG). They are microscopic in size – the iQ, all of ten feet long, end to end; the Smart having room for just two people.