Pro/Con: Is government micromanaging US auto industry?

Yes: Industry, motorists victims of over-regulation

Over-regulation is slowing growth, stifling innovation and costing jobs across the economy. The auto industry is the prime example.

Auto workers and investors are obviously harmed by heavy-handed government regulation, but the biggest losers are drivers. In buying new vehicles, they already face higher prices for smaller, less-safe models, and this trend is going to get much worse in the next decade.

There are many niggling regulations hampering the auto industry, but what is crushing it are the outlandish new fuel economy standards promulgated by the Obama administration.

Congress originally passed Corporate Average Fuel Economy, or CAFE, standards for new cars in 1975 in the wake of the OPEC oil embargo.

CAFE standards remained at 27.5 miles per gallon for many years. The Democratic Congress in 2007 passed a bill that was enthusiastically signed by Republican President George W. Bush, which mandated “substantial, continuing increases in fuel economy standards.”

The Obama administration has taken it from there. In 2009, it announced a CAFE standard of 34 mpg by the 2016 model year. And in 2011, the Environmental Protection Agency colluded with environmental pressure groups and California state regulators to order a 54.5 mpg average by 2025.

These steep increases in fuel economy have been mandated just as the original 1975 rationale, namely lessening America’s dependence on foreign oil, was disappearing. The shale oil and gas revolution means that the U.S. will soon be the world’s biggest oil producer.

But rather than decide that hydraulic fracturing has made CAFE standards unnecessary, environmental pressure groups and the Obama administration are selling the much higher standards as a global warming policy. Better fuel economy will lower greenhouse gas emissions.

Automakers are investing tens of billions and will eventually have to invest hundreds of billions of dollars to try to meet these steeply higher new standards.

No doubt, these investments will lead to technological advances that will increase fuel economy. But those investments will have to be paid for by consumers in the form of steeply higher vehicle prices, which will never be made up through fuel savings.

New technologies, however, have their limits. At some point, meeting the 54.5 mpg average is going to force automakers to offer cars that have less power and are smaller and less safe.

What will happen when car buyers must choose between new models that cost more and offer less in terms of performance and size? My guess is that they will revolt. Auto sales will plummet as people decide to hang on to their current cars for much longer.

In the 2008-9 economic collapse, General Motors and Chrysler required huge government loans to survive. In the CAFE-caused crash that is coming, the entire industry — foreign as well as domestic — will need to be bailed out by U.S. taxpayers.

There is a simple way to avoid this calamity: Relax — or, better yet — repeal the CAFE regulations. The obstacle here is not Congress or the current administration.

Rather, it is that polls show that higher fuel economy standards are incredibly popular with the public. In my view, that is because CAFE standards have been successfully sold as saving lots of money on gasoline without increasing vehicle prices or lowering performance, size or safety.

That is not the case. Even the old 27.5 mpg standard has been deadly.

A Harvard Center for Risk Analysis study concluded that the smaller, lighter cars required to meet the standard led to an additional 2,200-3,900 highway fatalities per year. Doubling the standard to 54.5 mpg will lead to an even higher death toll in the years ahead.

It’s time to stop the Obama administration’s enormously costly regulatory onslaught. A good place to start is the auto industry.