CAFE: Most Perverse Product Regulation in History
GM is thriving in Europe, selling small cars that get lots of miles per gallon? Buick is among the biggest selling brands in China. GM is running away with Latin America.
The Big Three's problem, to be blunt, is North America. They should have pulled out long ago. Not only did history saddle them with a UAW labor monopoly that their foreign competitors have managed to avoid. Even that might not have been fatal had Congress not enacted its "corporate average fuel economy" rules in the 1970s.
Look at gallons consumed, miles driven, barrels imported or emissions emitted: CAFE has had no significant impact on energy consumption. Its sole practical effect has been to inflict on Detroit the need to produce, with high-cost U.S. labor, millions of small cars designed to lose money. CAFE has to be the most perverse exercise in product regulation in industrial history.
Had CAFE not existed, there is no reason the Big Three today could not be competitive. As businesses do, they would have allocated capital to products capable of recovering their costs. Investments in fuel efficiency would still have taken place -- to the extent consumers valued those investments. That is, if they were profitable.
Bottom line: $50 billion won't turn CAFE into effective policy. It will do just fine, though, as an indicator of Washington's willingness to throw good money after bad rather than admit the folly of its own long-running handiwork.
~Holman Jenkins in today's Wall Street Journal