6.09.2009

CAFE: failed business model foisted on Detroit

Lessons from setting the freight railroads free

Excerpt:

CAFE has done nothing to reduce gasoline usage or oil imports (car owners just end up driving more miles). In 34 years, not a whisper of testimony has come from any quarter that the policy actually works. It only causes U.S. manufacturers to make small cars and dump them at a loss on the public, subsidized with the profits of pickups and SUVs.

Detroit doesn't have to match the transplants in wages and benefits, but CAFE distorted what would have been the Big Three's natural path of adaptation to the natural fact of growing diversity in the marketplace with the arrival of foreign manufacturers. Detroit would have focused on market segments where it could compete profitably even with its higher labor cost -- on bigger, pricier vehicles where labor cost is a lower share of value added.

Unfortunately, Mr. Obama, that freethinker, took to the CAFE fraud like a bat to a belfry. He signaled his arrival on the presidential stage by sternly demanding higher mileage standards early in his campaign. The "change" candidate who might have broken with a generation of political cant about CAFE instead appropriated the fraud for his own careerist purposes.

That tangled web now catches him in a fatal contradiction as he pours tens of billions of taxpayer dollars into the failed business model that CAFE foisted on Detroit.


Comment: Predictions: Now that GM is Government Motors and the Obama administration is the de facto leadership of it. GM will build cars that Obama wants. And when Americans won't buy them, the Dems will raise gas taxes to the point that gas is again $ 4.00 a gallon (or more) and pain at the pump will make small cars economically viable. It's not a pretty picture!

2 comments:

  1. I don't understand all about the auto industry, but it seems that no matter what Obama does with GM it is going to fail, short of giving cars away for next to nothing. Even if they raised gas prices higher and higher, I would think foreign automakers would just make even more economical cars at still cheaper the price than GM. And if gas prices stay the same, they will still make cheaper and more economical cars. Not to mention better looking.

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  2. Very informative article, thank you for your suggestions and tips.
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