Tuesday, July 26, 2011

Auto Industry Holding the (Short) Straw

When you are holding a soda straw and trying to negotiate with someone holding a gun, you are not bargaining from a position of strength. When it comes to the new mileage standards currently under negotiations with the Obama Administration, the auto-makers are holding a straw.

During negotiations, one of the key areas that the auto-makers are looking at is the different rules imposed by the state of California on auto-makers. This “tradition” extends back several decades, initiated with the requirement for the catalytic converter. It has continued over the years as California has required auto-makers to improve fleet gas mileage and requiring oil companies to have a so-called summer gasoline blend (costly at the pump and the refineries). The auto-makes want a concession from President Obama that rules will not be different between California and the other 49 states.

Here is where it gets a little complicated. California is a huge state with 55 electoral votes up for grabs. It has been a democrat stronghold in recent years. But that could change. A recent bill passed by both chambers, but not signed by Governor “moonbeam” Brown, would give the electoral votes to the candidate who wins the nationwide popular vote. So Obama has to tread carefully here. He needs the voters of California to pad his popular vote totals. But he also has to not piss off the rest of the nation. If he wants those 55 California electoral votes, he has to find a balance (which I hope eludes him).

But California setting its own emission standards also falls under a states right under the Constitution. If I am not mistaken, California environmental laws have already been challenged in court and California has won. And oddly enough, I support California’s right to mandate laws that regulate items in their state, as long as those mandates meet or exceed federal levels. But the cost of this additional rules and regulations are passed on to the consumer in the form of higher prices for autos, which are some of the highest in the US.

There are some that say the California requirements have driven innovation. That argument does have some merit. But the marketplace also drives innovation. The auto itself and improvements therein were driven by demands from the public. Family size caused auto-makers to come up with cars that would carry the gang. Those wishing for a statement car drove the sports car market. The need for utility brought about the pickup. None of these hugely successful innovations were driven by government mandate. The marketplace demanded, the auto-makers delivered.

It is technically possible to reach the 62 mps wanted by the Obama Administration? I don’t know. But I am fairly certain that under current technology, it will be difficult AND it will be expensive. This will be a cost that you and I will have to bear.

Anyways, with the auto-makers holing the straw, I don’t see how a president who fancies himself and his branch of the government above the rest will be willing to give on this condition.

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