The Big Three Enter The Hard Knock CAFE

There is no doubt that fuel economy - squeezing more out of every drop of fossil fuels we burn – is important. The question is whether now is the right time, or the government the right agent, to implement these changes. Automotive producers will be required to meet the Corporate Average Fuel Economy standards (CAFE) four years earlier than originally planned. The Obama administration apparently shortened the schedule to push the Big Three American auto companies – Chrysler, GM, and Ford – into focusing on Hybrids and other environmentally friendly designs.

The Time is Soon
With two of three buried in bankruptcy, the timing has been questioned. For GM and Chrysler, this may prove advantageous. They are now partially government-owned and will no doubt come out of bankruptcy with their powerful, fuel slurping lines of trucks, SUVs and Hummers already sold off to the highest bidder. No doubt, they'll also have government support in redesigning existing lines or porting over European/Japanese technology.

Ford, on the other hand, faces a dilemma. Having yet to take a government handout, the last of the Big Three is, in theory, independent. Although there is a trend to smaller, more fuel efficient cars when the price of gas gets up over $3 a gallon, American consumers go for larger, more powerful cars and trucks when fuel is cheap. This could owe to the fact that we value comfort because we spend more time driving longer distances than Europeans, as many industry analysts have mused, but the underlying reasons don't really matter as long as the trend holds true.

Two Choices
So an independent company producing cars for Americans has two products depending on the price of gas: small, fuel-efficient cars and big, powerful vehicles. The CAFE is attempting to legislate out the latter at a time when Ford, at least, needs to keep its profitable established (and not so fuel efficient) lines going while it figures out a way to compete against European and Japanese automakers who have been in the fuel efficiency market much longer. It's hard not to see this new legislative change as a disadvantage to the one automaker that has yet to burden taxpayers.

Leaving the timing aside, there is the question of whether the government should even be legislating these changes. You could argue that the need to save the environment outweighs the personal choice of prospective car buyers. In another era, socially conscious people waged a similar war against the degrading effects they saw alcohol having on society. Prohibition didn't stop people from drinking. Instead it pushed it underground and into speakeasies, and opened up a black market in booze that created powerful mobs in every major city.

Shifting Demand Vs. Forcing Demand
CAFE likely won't help the mob, but the small companies specializing in modifying motors and computers for more power will likely see their market grow. Then again, new generations of consumers are coming to the market and they have been exposed to much more information about the environment, the carbon cycle and alternatives. They may eventually shift American demand to smaller eco-cars through the natural mechanism of demand. And that's the point. If there is going to be a true move towards fuel-efficient, environmentally friendly cars, it should to come from the demand of educated consumers, not at the gunpoint of legislation. Values in a democratic society are supposed to be created by consensus, not by law.