Bailout Big Three By Cutting Red Tape

Why are we spending $17 billion of taxpayers’ money propping up two Detroit automakers (notably not Ford Motor Co.)? What the auto companies really need is a reduction in their regulatory burden.

Through excessive regulation, Congress has placed Detroit at a competitive disadvantage with foreign automakers, since many rules are aimed at eliminating the sort of vehicles that Detroit has proved adept at designing and marketing.

The following deregulatory bailout will help the embattled automakers without spending a dime of taxpayers’ money:

• Repeal federal fuel economy requirements. They restrict consumer choice by insisting that fuel economy take precedence over safety and impose restrictions on design that reduce the competitive advantage of Detroit automakers. If a reduction in fuel use is a necessary policy goal (I would contend it is not, but that’s an argument for another time), there are other policy options that would not impose direct costs on the automakers or restrict consumer choice. One is to remove the absurd "two fleet" rule that uniquely hampers U.S. automakers by prohibiting them from counting their foreign-made vehicles toward their fleet fuel economy average. Moreover, by reducing the weight of vehicles, high fuel economy mandates remove the single most cost-effective safety design feature of all, so this bailout measure would also save thousands of lives each year.

• Reduce the burden of safety legislation. There are too many safety rules that are counter-productive, such as mandated air bags, which have proved dangerous to children and people of less-than-average height. Consumers should be free to pick from a menu of safety options that allows them to take their own circumstances and preferences into account. This does not mean that automakers should be free to build cars that explode on ignition. There is a range of safety considerations, from safe to extremely safe. The United States is requiring too many "extremely safe" features while perversely reducing safety though fuel economy requirements. Again, the Detroit manufacturers feel these more intensely than other manufacturers because of the sort of vehicles they have specialized in.

• Halt the march of further design regulations. My colleague Wayne Crews has identified 22 new regulations that were being pursued last year that would increase the costs of designing and manufacturing new cars.

• Remove artificial barriers to merger through too strict interpretations of antitrust law. Federal antitrust authorities have stopped attempts at a merger of General Motors and Chrysler because the two firms together would have a dominant position in the "light truck market." Yet the recent oil price spike proved that customers easily substitute passenger cars for light trucks, showing that there is no such distinct market. If GM and Chrysler could merge, there would be plenty of scope for eliminating inefficiencies, which would allow the merged company to compete more effectively.

• Allow automakers–and, indeed, all firms–to repatriate foreign profits without double taxation. This will provide a much needed injection of funds. No other country handicaps its own companies in this way.

• Suspend particulate matter regulations emanating from California — but imposed on the United States. These regulations prevent automakers from selling in America the kind of high-mileage diesel-powered cars that sell well in Europe and meet all European emissions requirements. This will immediately reduce fuel usage and reduce the Detroit companies’ research and design costs, which must now go toward meeting California standards. Moreover, because the cars already meet European Union environmental and safety standards, there would be no significant reduction in those protections.

Taken together, this deregulatory bailout package would go a long way to restore Detroit’s competitive advantage and obviate the need for taxpayer money. Congress has hurt Detroit by burdening it with myriad rules. It should recognize that and remove them, rather than hurt taxpayers as well.

Iain Murray is director of projects and analysis and senior fellow in energy, science and technology at the Competitive Enterprise Institute in Washington, D.C., and a contributor to E-mail comments to [email protected].


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