Do We Need CAFE? Or Does the Market Respond to Fuel Prices?
After watching the auto industry and the impact of government mandated fuel economy rules for decades, AutoPacific Vice President and VehicleVoice contributor Jim Hossack takes a swipe at the proposed new CAFE rules.
What is CAFE?
About 30 years ago the U.S. launched Corporate Average Fuel Economy laws, designed to force the auto companies to sell more fuel efficient vehicles. The rules applied to both cars and light trucks, and for a few years fuel economy requirements increased and then levelled off. Apparently the government thought that competitive pressures weren't enough, and while our national energy policy was effectively "abunbant cheap gas for all", the message was "please don't use it". And the way to achieve the desired end (reduced fuel consumption) was not through increased gas prices, which might affect voters, the idea was to pass laws that only affected auto companies, which, after all, don't vote! What a plan!
The Law of Unintended Consequences
Unforunately (but predicably) the Law of Unintended Consequences struck. As cars were forced to have less fuel consumption, they became smaller, ligher, less powerful - essentially, less desirable. Light Trucks, on the other hand, were permitted to consume more fuel, and were therefore larger, heavier, more powerful than cars. They could tow the boat, horse trailer or RV and handle the whole family. Accordingly, truck (ie pickup, van, minivan and SUV) sales increased, and car sales declined. Gasoline was relatively cheap by both international and historical standards, and the market effectively chose performance over fuel economy, despite the CAFE laws.
Recent Events
Lately U.S. gasoline prices, adjusted for inflation, have increased to levels approaching those of 1981. While still low by international standards for industrial countries, gas prices have risen to the $3.00 (and above) level and show few signs of declining.
So, what should we do? Clearly it is in the national interest to use less fossil fuel imported at high cost from the unstabe Middle East, nations inclined to use the money in ways not in our national interest.
One approach would be to increase CAFE requirements (for both cars and light trucks) yet further. It might take a year to enact the law, then three or four for manufacturers to respond... and then, depending on fuel prices, the public might or might not buy the product. Bob Lutz, General Motors' product guru, has likened this approach to trying to get America to lose weight buy requiring clothing makers to make smaller suits! Not gonna work.
An alternative would be to let gas prices rise based on market supply and demand... or even gradually increase fuel prices further with additional taxes. Now that will work for sure, and right away too. How do we know that? Because people can conserve: drive slower (maybe slow down to the speed limit!), use the AC less, inflate tires to their maximum recommended pressure, combine trips, carpool, walk or ride a bike for short trips, let the kids take to bus to school etc.etc. In time people will live closer to work, telecommute more, and generally be more energy efficient.
Americans Vote With their Wallets
What CAFE ignores is that market forces will work in the end. As fuel prices continue to go up, buyers will begin shifting to more fuel efficient vehicles no matter what CAFE says. To meet demand, manufacturers will begin developing and selling more fuel efficient vehicles. This is market pull rather than regulation push. And it works much better.
Recent new vehicle sales results suggest that buyers are buying fewer trucks and more cars. Survey data from the VehicleVoice Fuel Price Impact Survey indicate that buyers are more likely to consider shifting out of their SUVs and eight cylinder vehicles with higher fuel prices. this approach doesn't get politicians votes, but it is a far better and more certain way to achieve greater energy independance.
