The Auto Bailout We Need

GM and Chrysler have come back for more taxpayer money, which is exactly what everybody warned would happen when the first bailout was granted last year. The restructuring plans, including the Canadian proposals announced this week, merely represent an attempt to achieve the results of bankruptcy, with the taxpayer picking up the costs. What is needed is not more taxpayer money, but a way to make U.S. automakers competitive again. The United States government can do that through a simple, cost-free, program that will remove burdens Congress has unfairly placed on the auto industry. These include:

  • Repeal federal fuel economy requirements. They restrict consumer choice by insisting that fuel economy take precedence over safety, and they 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 rules 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 at the Competitive Enterprise Institute 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 overly 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 to the United States 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.

With such a “liberate to stimulate” program in place, US automakers will be able to regain their place as world leaders. Instead, we see GM begging Congress for US$8-billion to design cars as fuel-efficient as ones they already sell in Europe. This is absurd and must end.

Iain Murray is senior fellow in Energy, Science and Technology at the Competitive Enterprise Institute in Washington.