CAFE's Consequences: Some lawmakers never learn.
July 31, 2001
BY HENRY PAYNE AND DIANE KATZ
Copyright 2001 National Review Online

As if trapped in a time warp, Congress just keeps repeating the policy mistakes of the 1970s.

Like the campaign-finance laws of the Watergate era, the federal-fuel-efficiency regime has been a 25-year exercise in regulatory futility. But rather than bide the lessons of history, lawmakers are bent on dooming us to more of the same.

The House last week began debating tougher mileage standards - as if making motor vehicles more dangerous and expensive will somehow solve the nation's energy "crisis." A moratorium on changes to CAFE (Corporate Average Fuel Economy) will expire Sept. 30, and automakers have abandoned their fight for extension in exchange for billions of dollars in subsidies to develop so-called alternative fuel vehicles.

A rational deal, perhaps, so long as lawmakers uphold their end. But Democrats are proving rather uncooperative about lavishing tens of billions of dollars on Big Three R&D. And division within the Big Three ranks, with Ford Motor Co. trying to out-green its rivals, has undermined the industry's political leverage. So Detroit's appeasement strategy, it seems, is likely to backfire yet again.

Congress was savvier about creating political cover, commissioning a study on CAFE from the National Academy of Sciences with which to justify stricter standards. A draft of the executive summary was leaked to the New York Times on the eve of House action, with the obvious result that the pro-CAFE Times played directly into proponents hands.

The Times trumpeted the draft's finding that fuel economy could be raised 8-11 miles per gallon over 6-10 years with costs offset by gasoline savings. But the cost-savings equation is relevant only so long as the cost of gasoline remains static and fuel consumption is unchanged - neither of which has held true for the past 25 years. And some 19 paragraphs down we are told that "selection of a new fuel economy target will require uncertain and difficult trade-offs among environmental benefits, safety, costs, oil import dependence and consumer preferences, trade-offs the committee believes rightfully reside with elected officials."

But whether automakers can achieve mileage mandates is not really the point. Attempting to regulate petroleum consumption through fuel-economy standards just doesn't work in a market dictated by consumer demands.

It is ironic that after more than two decades of CAFE, half of all new vehicles sold today fall into the lower-mileage light-truck category. But, says General Motors economist R. Mustafa, precisely because onerous fuel-efficiency regs squeezed family sedans out of the car market, consumers instead have turned to light trucks for the power and safety features they prefer.

Consequently, and in direct defiance of regulators' best-laid plans, average fuel efficiency has actually declined in the past decade.

Meanwhile, CAFE has had serious repercussions for Detroit's competitive position. As auto analyst John Schnapp recalled in a recent Detroit News column: "We reported that the costs of CAFE compliance would be disproportionately high for the smaller automakers and might well push the already fragile Chrysler Corp. into bankruptcy. Of course, Chrysler did go bust, a victim certainly of its own ineptitude but also of the cost of CAFE compliance."

And because Big Three profits are largely derived from high-end "gas guzzlers," they take a disproportionate economic hit under the CAFE regime. As Japanese manufacturers put increased pressure on the Big Three in the truck market, Detroit executives fear that an increase in truck CAFE standards will put them at a disadvantage by restricting the variety of vehicles they can develop in response. In other words, does Chevy risk losing profits by not offering a new version of the Suburban - or risk violating CAFE by offering it? As liberal Wall Street Journal reporter David Wessel gleefully reported July 12: "Automakers hate CAFE" because "it forces them to make consumers buy fuel-efficient cars, whether they want them or not, and it means selling fewer profitable big cars and vans."

Think of that the next time one of the Big Three reports low earnings that necessitate worker layoffs.

CAFE's consequences have also been fatal. For the first time, the National Academy of Sciences reportedly acknowledges that downsizing vehicles to improve fuel efficiency "may have contributed to thousands of additional deaths." And according to a slew of independent studies, tens of thousands of people have died of highway smash-ups who otherwise would have survived had they been driving in heavier, more crash-worthy vehicles. Even stricter standards, meanwhile, would mean that manufacturers would be further precluded from upsizing smaller vehicles to improve safety.

Given this record of failure, the only clear beneficiaries of CAFE are politicians who score environmental points by muscling the auto industry. The Journal's Wessel says CAFE is the best political solution to save energy because, unlike gas taxes, the public perceives that Detroit is fixing "the problem so they don't have to make any obvious sacrifices." But the public might be less amenable if leftist