NCPA - National Center for Policy Analysis

LET DETROIT BUILD PROFITABLE CARS

January 2, 2009

In the continuing battle over Detroit, there is one alternative that may relieve some of the pressure off wages and benefits: free automakers to build cars for profit rather than meet regulatory mandates.

Like all regulatory schemes, Congress's Corporate Average Fuel Economy rules froze in place a conception of the auto industry as it appeared to the minds of Congress in the early 1970s, when three manufacturers dominated the U.S. market, making full lines of vehicles.  Today, more than 25 companies sell vehicles here, and the corollary of such diversity, normally, is specialization.

The Big Three, left to their own devices, would surely specialize in those vehicles on which they make money—those with hefty price tags and markup relative to their man-hour content.

  • Even at the peak of gas prices, half the vehicles sold in the U.S. were light trucks.
  • In November, amid a collapsed home construction industry and with $4 gasoline fresh in mind, what were two top sellers? Pickups by Ford and Chevy.

United Auto Workers chief Ron Gettelfinger should be calling for an end to CAFE, an idiotic scheme that has done little to reduce gasoline demand or oil imports.  Flexibility to build cars for a profit couldn't help but benefit all of Detroit's stakeholders, including a UAW struggling to preserve an island of high-wage manufacturing inside what would at least have the possibility of becoming healthy Detroit-based global competitors.

Source: Holman W. Jenkins, Jr., "Let Detroit Build Profitable Cars," Wall Street Journal, December 31, 2008.

For text:

http://online.wsj.com/article/SB123069003507444659.html

 

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