The thinking behind the Obama administration's proposed new fuel efficiency standards seems to be: What won't kill the auto industry will make it stronger. But these standards are the regulatory equivalent of a bunker buster that will, in fact, decimate the industry.
In an effort to bring its global warming initiative back from the dead, the administration has announced that it wants automakers to raise the Corporate Average Fuel Economy, or CAFE, of their fleets from the 34.2 miles per gallon that it mandated in 2009 (which the companies are still scrambling to meet) to 56.2 mpg by 2025. Not a single car—big or small, hybrid or non-hybrid—currently delivers this kind of mileage (with the exception of electrics). But CAFE backers are pooh-poohing industry claims that these standards are unattainable. "Virtually every major improvement in U.S. fuel economy and emissions over the last quarter of a century started as a stringent government standard that automakers … initially insisted was impossible to meet," harrumphed a recent Detroit Free Press editorial. "Then the same companies turned their engineers loose and met or exceeded the threshold."
Not really. Rather, they unleashed armies of lobbyists on Washington to poke holes in the CAFE regime. For example, companies that don't meet CAFE standards face fines. But the fines are so low that many luxury brands prefer to pay up rather than comply. Likewise, companies get CAFE credits, the auto equivalent of indulgences, for flex-fuel vehicles built with gasoline as well as ethanol tanks. Fitting them with both doesn't add much to manufacturing cost, which is why carmakers happily churn them out even though everyone knows that few drivers ever use ethanol.
But to the extent that carmakers have complied with CAFE, it is less through radical innovation and more by simply slashing vehicle weight. In the 15 years after CAFE standards were first introduced in 1974, vehicle weight diminished by 23 percent. But every 100-pound weight reduction results in a 4.7 to 5.6 percent increase in the fatality rate. A 2002 National Academy of Sciences study concluded that CAFE's downsizing effect contributed to between 1,300 and 2,600 deaths in a single representative year, and to 10 times that many serious injuries.
Even ignoring this loss of life, the era of improving fuel economy by slashing vehicle weight is drawing to a close. Indeed, Sean McAlinden, chief economist at the Center for Automotive Research, notes that it is technologically impossible to squeeze anything beyond 45 mpg in fuel economy from current vehicles. That's why Europe's fuel economy has plateaued at that level, despite $8 per gallon gas. The 56-mpg-mandate will require a total, top-to-bottom overhaul of cars. Every part of a vehicle from its transmission to its engine would have to be replaced. "Even a vehicle's screws and fasteners would have to be secured with epoxy glue," McAlinden maintains.
Unless automakers once again manage to write massive loopholes into the proposed CAFE regime, the upshot will be similar to the fiasco created by the light bulb mandate that Congress recently tried unsuccessfully to repeal. The mandate required light bulbs to consume 25-30 percent less energy by 2012. But this effectively outlawed cheap incandescent bulbs while artificially boosting more expensive and annoying fluorescents, triggering a consumer revolt.
Likewise, the Obama CAFE standards will drive out pickups and other large vehicles, American automakers' biggest profit makers, and usher in hybrids—their biggest money losers. That's because pickups that are CAFE-compliant will be have to be constructed from aluminum or some equally light material, something that will bump their cost upwards of $80,000 per vehicle while rendering them useless for towing.
Meanwhile, even the Environmental Protection Agency admits that the market share made up by hybrids and electric plug-ins will have to touch 49 percent if the industry is to come anywhere near compliance. Given that these vehicles now occupy only 3 percent of the market despite hefty subsidies, it is a foregone conclusion that expanding their presence will mean massively expanding subsidies to them.
Taxpayers are going to be on the hook for more than just hybrids, however. Indeed, average vehicle prices will shoot through the roof, pricing many car buyers out of the market, shrinking the industry and jeopardizing millions of jobs. But if Washington could not resist showering taxpayer dollars on General Motors and Chrysler to prevent job losses now, it is unimaginable that it will sit back when the entire industry confronts a carmageddon. Indeed, the $100 billion that taxpayers have spent on the current bailout will look like chump change compared to what's to come. This is making even the UAW nervous, causing it to join ranks with automakers to oppose the standards.
The administration's proposal in one fell swoop manages to screw over taxpayers, drivers, car buyers and autoworkers. The least it can do is give lawmakers a chance to thoroughly weigh the tradeoffs on the country's behalf. But the president is trying to impose the new standards through regulatory fiat without Congressional approval. No administration—blue or red—has ever done this before. This is tantamount to declaring war on autos without a formal declaration from Congress.
Someone needs to rein this president in.
Shikha Dalmia is a senior analyst at Reason Foundation and a columnist at The Daily, where this column originally appeared.