How much impact does government regulation have on the automotive sector?

Government regulation in the automotive industry directly affects the way cars look, how their components are designed, the safety features that are included and the overall performance of any given vehicle. As a result, these regulations also have a significant effect on the automotive business by generally increasing production costs while also placing limitations on how cars are sold and marketed. Automotive regulations are designed to benefit the consumer and protect the environment, and automakers can face stiff fines and other penalties if they are not followed.

In the 1950s, a consumer could easily differentiate one car from another by its make and model. Car designs varied wildly year to year, and the creativity of these designs were part of their sales appeal. However, these designs also differed greatly from one another in terms of safety.

How Government Regulation Affects How Cars Look

For example, the 1953 Mercury Monterey had a rigid steering column and sharp levers on the heating system that could potentially impale a driver on impact. As the government stepped in and started adding more modern safety requirements, such as seatbelts, airbags and crumple zones, many of the car designs started looking the same so that automotive companies could more easily be in compliance with these requirements. Every safety feature has design limitations, takes up a certain amount of space and has to fit in a specific area of the car. This limits a car designer's options when creating concepts for new vehicles. (For related reading, see: Automatic Brakes Will Be Standard.)

Lawmakers also made fuel efficiency a higher priority in recent years. The Corporate Average Fuel Economy (CAFE) is a set of national standards for automotive fuel efficiency that went into effect after the Arab oil embargo in the early 1970s. The standards were upgraded in 2012 to increase fuel efficiency goals to 54.5 miles per gallon by 2025. The development and implementation of new technologies to reach these goals require substantial investment from automotive companies to ensure new car models are both fuel-efficient and safe. 

Emissions Laws Increase Cost

Emissions laws also affect a car maker's bottom line. Catalytic converters and other devices designed to reduce a car's emissions cost money to develop, test and mass-produce. While this expense is typically passed on to the consumer, environmental regulations still significantly affect the day-to-day operations of the automotive sector.

Government regulations are not restricted to the United States. Most automotive companies make vehicles that ship around the globe. It is in their best interests to have standardized vehicles that do not require modification before being sent to a foreign market. As a result, many cars are designed to meet not only U.S. regulations, but the regulations of other countries as well. This adds further expense and hampers the design process, because there are many different criteria that need to be met for a vehicle to be street-legal in different parts of the world. (For related reading, see: Blackrock: U.S. Auto Industry Faces Hard Road Ahead.)