Could New EPA Requirements Cause Headaches for Automakers?

The taxpayer-funded auto bailout was largely the result of a number of poor decisions made by General Motors and Chrysler. Along with the excessively high labor and legacy costs, Detroit’s dependence on big, non-fuel-efficient vehicles was its own doing and at one time, was a very profitable strategy. Detroit struggled to make competitive fuel-efficient vehicles that rivaled its Japanese counterparts. The government stepped in and took a controlling stake in General Motors and, more recently, attempted to provide more regulatory stability by mandating stricter fuel efficiency standards. The Environmental Protection Agency and National Highway Traffic Safety Administration announced fleet-wide requirements of 34.1 miles per gallon 2016 for all automakers in the U.S.

Automakers are supportive of the ruling since it provides some regulatory stability, but it doesn’t come with guaranteed consumer demand. Setting aside the other problems with the government mandate, the new government regulations become a problem if it forces car manufacturers to produce vehicles no one wants to buy. Gloria Bergquist of the Alliance of Automobile Manufacturers said, “We have a hill to climb, and it’s steep, so we will need consumers to buy our fuel-efficient technologies in large numbers to meet this new national standard.”

Bob Lutz, Vice Chairman of GM echoed Berguist’s remarks saying, “We’ll have to force a lot of hybrids, which people may or may not pay for.” Consumers have a wide variety of choices when it comes to purchasing a vehicle; clearly, a number of smaller, fuel-efficient cars exist on the market today – including a growing number of hybrid vehicles. Yet Jake Fisher, senior automotive engineer at Consumer Reports said, “Performance hybrids and mild hybrids haven’t gained any traction in the market.”

So there’s a potential for mass quantities of vehicles sitting on dealerships lots – sounds a lot like the last auto bailout. Maybe this time the government will be able to predict what consumers want down the road. Or maybe the government has backed our nation’s automakers into a corner and the only way out is more taxpayer-funded handouts. Megan McArdle says that raising the country’s fuel economy standards “will either help the Big Three compete, or seal their doom as the Japanese manufacturers continue to eat into their market share. If I had to bet, I’d wager this means big ongoing subsidies for our favorite three public charities.”

Just what American taxpayers were hoping to hear.

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