The Heritage Foundation

Executive Memorandum #258 on Smart Growth

January 11, 1990

January 11, 1990 | Executive Memorandum on Smart Growth

Will Congress Again Handicap U.S. Auto Competitiveness?


(Archived document, may contain errors)

Will Congress Again Handicap U.S. Auto Competitiveness

Just, as the American automobile industry is facing its toughest competition every from Japanese manufacturers, Congress is considering legislation that could destroy one or more of the three United States auto companies. A few days before Congress recessed last year, the Senate Environment and Public Works Committee okayed its verson of the Clean Air Act, which inlcudes a provision to reduce substantially carbon dioxide (CO2) emissions from automobiles. This measure is meant to be a partial response to the supposed threat of global warming. Failure to comply with the CO2 regulations would result in some of the stiffest fines found in any federal statutes. The only way U.S. automobile manufacturers can comploy is by reducing dramatically the amount of fuel that autos burn. In practice, this will mean that all new cars sold in the U.S. will have to average 33 miles per gallon (mpg) beginning with model year 1996 and 40 mpg beginning in model year 2000. They currently must average 27.5 mpg. 

This senate provision wou -S' -companies to. move. a large portion of their.-. t'*"Ibig'Senate' Id force. the U. Aased ,.09anufacturing facilities abroad..Worse still, it..WQuld m ake it more difficult and.costly, if.not nearly ni@os@4@@ for Americans' io@ buy''JMnifly-sii-ed au'to 'mobiles iiiii @snd w' e"viden'c'e' 'c'o'nffrm;'s' common 1. pf."Irise: larger cars tendto. be' S'afdi cars.. Finally, the contribute o y mod6stly'to ie f forts to provisio. n wou @id a@y "greenfiouse effect" b:e.ca Iuse 03: iDiti's'e"n er car .s acco'fint for no more thain"two pe .reent of g. e carbon. dioxide ermssions. L P.", -S-ince-1975, Congress. has. mandated that all fleets of new. cars scld in:the U .S. must., meet certai.n:.gas heage:sta dards. known -as Corporite-Av rage FuelEconomy (CAFE). Creation of the CAFE. . m-i n . , a -e -a well,-intentibned attempt in the wake.of the first.Axab oil embargo to reduce U.S.- - ,..:@cg.tandards,was .11.epetide pce -on -imported- oil. Manufacture s.are n w.. rpqPired to achieve an. aver@ge .&I econom, wfor all of their cars of 27.5 miles per gallon.

n .-,Dangers From Smaller Car&.-Sirlce less wei2ht meansbetter automobile. fuel eponoTy.,,j dhen@e lower C02 emissi ons, the Smateprovision woi-ild-put'.enbrmous'pressure.. on automobile,c-qT. 'qnie5 t(i ip manufacture. and sell more small, -.1i ght-cars to-meet the mandated-fleet a'vera2e. Yet an.Insurance.., Institiate for High-way Safety.study released the same week that the Senate committee voted f@r; its measure coin-firms -the findings olf other- recent. studieg: Overall, people ridinkin small,. lighf,dars are at greater.risk,of death and serious in*ury in accidentg than.. those. riding.in. heavier.cars. Exafn@.1e : ,the. j National Highway Traffic Safety Administraition reported last summerthat serious injury rates in single vehicle a6didents are 22 percent higher for subcompacts than they are for the largest cars. H6tAPE_sta.ndatd5 Put -]@y.mandatiii2 fuel. econo-' i y:av rages.for each -manilfacvit6r,.rnoreo,,yye,,,., curre q R -- - - - . 1 1. 01 - _- J -1 P - ; z.... @ paiticular.;vressure on' A-rherican. automobile,comp@s,.,.,M6,i Qv, p easom .a.st'qiidrt.er-cqnT",7,,, 41 ume f Amqrf n facturerc.-iar.-re.-@L-.inglv - haNe specialiiW 14 niee "s"' r @6f:faknip-size cq. SWIVIII. ,dgrp @1. % d I Nif; '6 th mar et. yehicles, while. Japone,1`6 -rn4hnifacturers. ayedb@ibii&a r. "'A'Federat %. . -, r T, ... ... j .1 @- I . I I I f5 tir J -,I W .: J.L P C Trade Coniffiissibin r6port last fall'o-ofnt's"'o"u"'t"tl@,a't imposing Ig r2d, c o Rda es no c MY Agn t n c u.;' ;I L e-e s's a'r'i I 'y"ip" u iA i he""r i t, af i @'i 6 ri Instead,many consumers who demand safer, more comf ortable cars keep the ones they already own for longer periods, thus depressing demand for the very cars that American companies specialize in providing.

Comfort and Safety. In the mid-1970s, concerned about higher gasoline prices, Americans opted for sma l ler cars that emphasized fuel efficiency. But oil price deregulation and the resulting abundant supply of gasoline have made fuel economy a lower priority for many Americans; it has been replaced by a desire for comfort and safety. Larger, family-sized ve h icles typically weigh over 1,000 pounds more than compacts. This makes achieving even the current 27.5 mile per gallon fleet average tough on U.S. manufacturers. The head start that foreign manufacturers had marketing smaller, fuel-efficient cars is only h alf of their advantage. CAFE laws further handicap American producers by creating two fleets for every manufacturer: those of vehicles manufactured largely in the U.S. and those of vehicles in which 25 percent or more of their content is manufactured abro a d. CAFE standards are applied to each fleet separately. Therefore, U.S. manufacturers cannot use the greater fuel efficiency of their compact cars, which tend to be produced overseas for import to the U.S., to offset the larger cars they manufactu re in t h e U.S. The CAFE system also provides "credits" to manufacturers who have done better than the average fuel economy standard in past years. While providing much-needed flexibility to all companies that MLISt comply with CAFE standards, this has permitted t h e Japanese to accumulate large CAFE cushions. It is this that is, in part, allowing the major Japanese manufacturers to introduce new luxury models in the U.S. that are heavier, have more powerful engines, and get fewer miles to the gallon than their othe r models.This frontal assault on the one market niche that U.S. companies still dominate is possible because the Japanese firms' CAFE credits will protect them from the risk of fines as their overall fleet fiiel economy averages go down. And this trend com e s at the end of a decade in which American companies have seen their share of the U.S. market decline from 84 percent to 69 percent. Handicapping American Competitiveness. To counter this new Japanese sales offensive effectively, American companies must b e able to redesign their larger cars. Yet the inability to average the mileage of their larger cars built in the U.S. with their smaller cars built in large part overseas inhibit the U.S. carmakers from making such changes. It was no surprise, therefore, w h en Ford Motor Company announced early last year that it was shifting a significant portion of its large car production to foreign plants. As bad as the present CAFE statute is, it is tame compared to the potential impact of the Senate measure, whose effec t would be to raise CAFE to 40 miles per gallon. Perversely, it penalizes Ame ri can companies, thus handicapping America's ability to compete. Environmental issues indeed are matters for serious concern. Respected scientists, however, strongly disagree ab o ut the severity of the global warming problem that apparently is the motivation for the Senate committee's proposed change in C02 auto emissions standards. At best, moreover, the new standard would reduce worldwide C02 levels by only a tiny amount. Senate Majority Leader George Mitchell has announced that he intends for the full Senate to take up the Clean Air Act as soon as Congress reconvenes. Many members of Congress hesitate voting against any act labelled "pro-enviromment." This is understandable. But the Senate committee's C02 auto emissions provision should not be viewed as an environmental matter at all. It should be judged not on its well-meaning intentions but on its near-certain results: new handicaps for the U.S. economy and America's internatio nal competitiveness. Jim Burnley Chairman, Advisory Committee The Roe Institute for Economic'Policy Studies, Ile Heritage Foundation

The author served as Secretary of Transportation from December 1987 to January 1989 and now practices law in Washington, D.C.

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