Why not just defy CAFE mandates?

[dwightlooi]

Really, we need to ask this question -- why should GM obey the polticians' views and comply with CAFE standards?

(1) GM and other car manufacturers should decide -- first and foremost -- what kind of cars they build by what the market demands. CAFE is not a ban, CAFE is a penalty law for not falling in line with the opinions of the political leadership.

(2) What CAFE say is [if the average fuel economy of a manufacturer's annual fleet of car and/or truck production falls below the defined standard, the manufacturer must pay a penalty, currently $5.50 USD per 0.1 mpg under the standard, multiplied by the manufacturer's total production for the U.S. domestic market]. This should be weighed as a cost not as a mandate of Heaven or something.

(3) GM's CAFE current score is 29.6 MPG for passenger cars. Say it completely ignores the new CAFE standard and is still at 29.6 in 2020 (which I doubt will be the case, CAFE or no CAFE revision). It'll miss the target by 5.4 MPG. That's a penalty of $297 per vehicle. It's hardly astronomical if GM is indeed producing cars which consumers want to buy. GM can simply put on the window sticker a defiant statement $297 has been added to the price of this vehicle by your elected representatives in Washington DC, if you are not pleased with this you may want to consider unelecting them with your vote in the upcoming election. I seriously doubt $297 will make or break a buying decision. Forcing a 4-potter on a V8 shopper, forcing a hybrid on somebody who will rather pay $4000 less for a conventional drivetrain or forcing a FWD sedan on someone who is looking for a RWD ride flying red, white and blue on the other hand WILL break a buying decision.

The other option is to simply spin off certain high performance, market desired, models into a separate corporate umbrella. Split GM into two corporations -- call it defiantly General Motors CAFE and General Motors Performance corporations if you want. GM shares are split, GM becomes two legally separate corporations. One making econocars in compliance with CAFE and does not pay fines, the other in proud defiance making nothing but gas guzzling Corvettes, Sport Sedans and SUVs paying CAFE fines with no remorse. Really the two companies can still share platforms, technologies and even supply chains -- just like Toyota and GM can if they completely trust each other. The CEO of GM can even be the CEO of both -- just like the CEO of GM can also be the CEO of Apple Computer if the boards of directors so decide.

[Hudson]

Nice thought...here's why it won't work.

The market is so competitive, that any "$297" charge will make your car far less marketable. So much so, that GM will EAT that $297 just to stay competitive. Additionally, that "$297" charge equates to $1,135,315,467 based on 2007 sales. Yes, that's over ONE BILLION DOLLARS!

Making a separate company to handle GM's lower MPG vehcles won't work either. As a company, all GM vehicles are averaged together. If you spin off the other vehicles, you've got to get the SEC involved and it's going to cost hundreds of millions if not BILLIONS to do this. And what would be the point when GM would lose lots of money selling fuel efficient vehicles and the "other" GM would make some money only to lose it all paying huge fines. It's not like there's a reverse tax on GM if they beat the CAFE limit.

And the federal government is the LAW. Why doesn't GM just make cars with no airbags or without bumpers or without emissions controls to make more money and be more competitive? BECAUSE IT IS THE LAW.

CAFE is a minor annoyance. It will be easy to beat the standards in the time allotted. If your number is right (I haven't seen an official 2007 CAFE number for GM) and the company is already beating today's standard by nearly two MPG (which I have a hard time believing), then improving the lineup the 20% in the next decade will be possible. And I think you'll barely notice the difference.

Today's cars are the best ever built. They're more powerful than ever. They're more efficent than ever. They're cleaner than ever. They're safer than ever. And they're still amazingly affordable for what you get. A higher CAFE standard is no problem. I believe in the engineers...they can do it. It's not going to be miraculous...it's simply more of the same from them.

[dwightlooi]

Nice thought...here's why it won't work.

The market is so competitive, that any "$297" charge will make your car far less marketable. So much so, that GM will EAT that $297 just to stay competitive. Additionally, that "$297" charge equates to $1,135,315,467 based on 2007 sales. Yes, that's over ONE BILLION DOLLARS!

I disagree based on two arguments.

(1) When is the last time you know anyone who bought or didn't buy a new car over <= $297 dollars? Compare that to the instances of someone you know who didn't buy a car over the fact that it didn't have the performance, the engine choice, the quality, size, configuration or the styling that he/she is looking for? If it is all about $297 all the customers who bought V6 Malibus would have bought 4-cylinder Malibus, and all the Suburban buyers would have bought a somewhat cheaper Honda Pilot. In other words, the desirability of certain drive trains, vehicular design (which using smaller platforms or lighter materials may impact) and configuration (RWD vvs FWD for instance) overwhelmingly outweigh $297. $1 billion is not a lot of money when divided by 3.8 million vehicles.

(2) On top of market desirability concerns of making design and specification decisions to meet CAFE regulations, one has to weigh the cost of additional content to meet it. What if the marginal cost of additional technology content needed to meet CAFE exceeds $297 (which it might)? Even if it doesn't it will surely eat into the $297. Say you end up spending $180 more per car on injector, sensor and bearings to reduce consumption to meet CAFE. So you really avoided not $297 but $117 per car by meeting it.

Making a separate company to handle GM's lower MPG vehcles won't work either. As a company, all GM vehicles are averaged together. If you spin off the other vehicles, you've got to get the SEC involved and it's going to cost hundreds of millions if not BILLIONS to do this. And what would be the point when GM would lose lots of money selling fuel efficient vehicles and the "other" GM would make some money only to lose it all paying huge fines. It's not like there's a reverse tax on GM if they beat the CAFE limit.

And the federal government is the LAW. Why doesn't GM just make cars with no airbags or without bumpers or without emissions controls to make more money and be more competitive? BECAUSE IT IS THE LAW.

CAFE is a minor annoyance. It will be easy to beat the standards in the time allotted. If your number is right (I haven't seen an official 2007 CAFE number for GM) and the company is already beating today's standard by nearly two MPG (which I have a hard time believing), then improving the lineup the 20% in the next decade will be possible. And I think you'll barely notice the difference.

Today's cars are the best ever built. They're more powerful than ever. They're more efficent than ever. They're cleaner than ever. They're safer than ever. And they're still amazingly affordable for what you get. A higher CAFE standard is no problem. I believe in the engineers...they can do it. It's not going to be miraculous...it's simply more of the same from them.

The Federal Government makes the LAW, but corporations do not have to be supportive of it or be co-operative with it. LAWs define behavioral standards and penalties for non-compliance. In this case, the penalties may not warrant compliance. For instance, if the law says that parking on the street carries a $10 fine with no provisions for towing your car and no incremental penalty hikes for repeated offenses. If parking garages in the vicinity are $25 per hour, if may make a lot of sense to simply defy the lawful recommendations and accept the fine.

I believe in the engineers too. But I believe that corporations should spend their efforts at delivering what the market demands, not what the Federal government desires. It is not like the penalty for ignoring CAFE mandates is a suspension of GM's business license and lethal injection for Rick Wagoner! It's just a small fine per vehicle. GM should figure out whether the market wants to shoulder the fine or accept the types of cars and trucks which CAFE will like to have GM sell -- which may or may not be what the market wants!

[chevelle454]

I thought of something like this too. Would it be cheaper to pay the penalty, than to sinks billions and billions into research and development. The end result of making a vehicle meet the standard, may make for a poor performing, slow, problematic car that no one will want.

[Chicagoland]

Gearheads want RWD fast cars, but then how many really buy brand new ones? Most get used ones to 'save $' and expect 20-30 year old sticker prices. No way can GM risk bad PR to make gas hogs to please hobbyists who don't buy new cars.

GM has to keep the Corvette and Camaro competitive and offer economy cars to offset them. Expecting a full line-up of muscle cars as the 60's is a dream long gone. Also, most younger buyers have little interest in big RWD V8 coupes, they either want compact sport coupes {Camaro/Mustang...} or AWD turbo sedans [Evo/WRX], so there is no market potential, and gas will NEVER be cheap again for new CAFE.

And, if you think CAFE sux, then organize a lobbyist group and contact Congress, but I dont expect much will happen.

[FAPTurbo]

Defying CAFE would likely be a PR nightmare. People are becoming more and more green conscious, and the media would jump on GM faster than Lindsay Lohan on a bottle of Svedka.

[pow]

Defying CAFE would likely be a PR nightmare. People are becoming more and more green conscious, and the media would jump on GM faster than Lindsay Lohan on a bottle of Svedka.

Agreed. This reeks of the Pinto disaster, when Ford made cost-benefit decisions based on a $200K price per human life, without considering the subsequent years of consumer backlash.

And market forces dictate better fuel economy anyway..

[Hudson]

I disagree based on two arguments.

(1) When is the last time you know anyone who bought or didn't buy a new car over <= $297 dollars?

You're probably right...it doesn't seem that $297 would make much of a difference. But in the hypercompetitive car market, it could mean the difference between one vehicle and another. If the net gain in sales outweighs the losses of the more expensive higher MPG vehicles, that $297 will grow...substantially.

(2) On top of market desirability concerns of making design and specification decisions to meet CAFE regulations, one has to weigh the cost of additional content to meet it.

Yes, but EVERYBODY needs to invest this money. But this isn't the same as the net cost of a ticket over a parking garage. And if the car companies would rather pay the fine than meet the regulation, what's stopping the government from RAISING the fine?

And market forces dictate better fuel economy anyway..

Yes, which is the whole (or most of the) reason for the rise of trucks over the past 20 years. They were held to a lower CAFE standard and buyers migrated to them.

[vonVeezelsnider]

GM/Ford/Chrysler should team up and do a TV spot advertising that Washington's plan is three times harder on them than it is on foreign manufacturers. That's taking it to the streets. Edited May 27, 2008 by vonVeezelsnider

[daves87rs]

GM/Ford/Chrysler should team up and do a TV spot advertising that Washington's plan is three times harder on them than it is on foreign manufacturers. That's taking it to the streets.

THe sad part to that is that if they did do that-people would just laugh....

[Hudson]

GM/Ford/Chrysler should team up and do a TV spot advertising that Washington's plan is three times harder on them than it is on foreign manufacturers. That's taking it to the streets.

It would just come off as whining. Besides, the new CAFE standards, as far as I know, are EASIER on manufacturers of larger vehicles than smaller vehicles. The whole new CAFE standard setup is stupid and only half-baked...but what do you expect from a government mandate. I don't have a problem with encouraging manufacturers from making more fuel efficient vehicles (and CAFE has NEVER been the way to do it), but the new CAFE standard is just dumb.

Bob Lutz was quoted saying something to the effect that getting better fuel economy by using a method like CAFE was akin to getting the country to lose weight by requiring clothing manufacturers to make only smaller sizes. The true way to get more fuel efficient vehicles is to get the DEMAND up, not the supply. Oil companies have done just this for us with gas prices tripling in just the past 7 years...and continuing to rise at or near record rates. Driving is down, sales of big vehicles is down, and sales of small vehicles is up.

Who would have believed just a couple of years ago that the Aveo and Metro would be among the hot topics on C&G?

[Camino LS6]

These are sad times, and I expect them to continue for quite some time now.

I would like to see a more defiant spirit from not only the manufacturers, but also from the complacent masses.

The degree of conformity and group think these days disgusts me deeply.

[Chicagoland]

Well so called real Americans, GOP, tell Detroit to stick it, and average buyers are now demanding better MPG.

So, no gearheads, notgonnahappenanytimesoon! Keep reading Car Craft and imagine a time machine.

[Northstar]

Lutz already said it will cost thousands of dollars per car to make the cars as fuel efficient as they have to be, so $297 is not much at all compared to that.

[Hudson]

Lutz already said it will cost thousands of dollars per car to make the cars as fuel efficient as they have to be, so $297 is not much at all compared to that.

Manufacturers of all products publicly overstate costs. Safety regulations first "mandated" in the 1960s and 1970s were to be price-prohibitive as well...and yet cars are just as (if not more) affordable than ever...and safer to boot.

Add to it the fact that (as stated above) the buying public is moving toward more efficient vehicles, investing that money will be necessary just to survive the marketplace, not only the CAFE regulations.

[ShadowDog]

It would be like being the only kid in class shouting the 'F'-bomb while everyone else reads quietly from the same book. You could be excused for it only if you suffer from mental incompetence... which could be something to consider if the current trend within GM continues.

[Chicagoland]

"GM ... what kind of cars they build by what the market demands. "

Market is demanding fuel economy now, not retro RWD Impalas. SUV's are tankinkg, so this myth that "everyone I know wants a new RWD Impala/Caprice" is just an opinion.

[dwightlooi]

"GM ... what kind of cars they build by what the market demands. "

Market is demanding fuel economy now, not retro RWD Impalas. SUV's are tankinkg, so this myth that "everyone I know wants a new RWD Impala/Caprice" is just an opinion.

The point is that GM should perhaps simply build the cars that the Market demands and completely ignore CAFE. This is so firstly because market forces should determine what gets produced, how much gets produced and how much they are sold for not the environmental conscience of a politicians and green lobby groups. More practically, this is so because the the stipulated CAFE penalties is inconsequential to the buying decision when passed on to the consumer.

There will always be a demand for RWD performance cars and SUVs even if they are not as strong as before. They type of buyer who has the mindset to buy a Hummer or a V8 Pontiac G8 is not doing it for the fuel economy or the lack thereof. The buyer of 4-cylinder Malibus and Cobalts are a different story. There will always be signifcant chunks of the market falling into both segments. IMHO, the manufacturer should simply decide on the ratio of the kind of vehicles to build based on market demand and let CAFE compliance or the lack thereof fall where it may.

[Hudson]

So a market that ignores the fact that a large portion of out gas money goes to areas of the world where they don't like Americans? If there were no outside influence on the American market, there'd be precious little investment on non-petroleum fed vehicles...oh wait, that's how it is. So when gas prices rise over 200% in just a few years, manufacturers of gas guzzling vehicles will be left holding the bag and losing market share...oh wait, that's how it is. And perhaps...just maybe...those politicians and green lobby groups are calling your attention to something more than your personal immediate selfish desires? Maybe...just once they could be right?

I'd love to drive an affordable electric vehicle on my daily commute, but nobody's built one. There's no incentive to think outside of the box when your whole business model is based around fossil fuel vehicles...and large ones at that. When economies of scale make it a better business case to make all petroleum vehicles instead of using other fuels, why not hide behind the "market desires" option? Even if there's a market for these other types.

The law of supply and demand states that when there's a demand someone will market a supply to fill it. The problem with that is there are barriers to market these vehicles. Some governmental and some business-oriented.

If the market were allowed to drive innovation, automakers would be making cars with OPTIONAL items such as emissions controls, bumpers, airbags, and seatbelts instead of mandating them. How many people would opt for catalytic converters?

CAFE is a bad idea...it's the wrong way to get better gas mileage vehicles on the road. But atleast it's an idea. The better method would be the European method where gas is heavily taxed...of the Japanese method where the size of the engine is taxed. Whether gas is $1.50 a gallon or $5.00, there's no reason why we shouldn't be driving more efficient vehicles. Simply wasting gas because you can afford the gas doesn't mean you SHOULD do it.