Drive-a-toyota Act for Upscale Environmental Lobbies

By: Kaye Leery

Nancy Pelosi, Harry Reid and most of their colleagues are siding with unrest in environmental solicit over American carmakers and workers. It is their Drive-a-Toyota Act, a phrase taken from maker and giant Japanese car maker Toyota.

The Senate Democrats in June forced energy legislation to increase Corporate Average Fuel Economy (CAFE) standards, requiring that automaker fleets hit an average of 35 miles per gallon by 2020 (up from today's 27.5 mpg). Detroit's Big Three (GM, Ford and Chrysler) warned Congress that this would add to their financial hurdles, making their vehicles even less competitive when compared with those by Toyota, Honda and other foreign automakers. The United Auto Workers warned that even a small mileage increase could cost over 65,000 jobs.

However, Senate Majority Leader Reid's response was to shrew Detroit for opposing him, and to assert that if the U.S. carmakers had only signed onto CAFE sooner, they would not be in their current dilemma. He said the Detroit car makers should have joined them rather than opposing them these last 20 years over CAFE standards, so that they are not experiencing a financial mess today. His blunt point is that if only GM and Ford had invested in new technology and smaller cars the way Toyota and Honda have, they would not be losing market share.

Detroit has GM tried but failed with its Saturn project. One of the reasons for that failure was the main competitive reality facing Detroit for a generation that has been the burden of its workers' pension and health care costs. Those costs add nearly $1,500 per vehicle than those Japanese or Korean competitors. Through making larger vehicles that earn more profit per sale than smaller cars do, those costs can be recovered. Making trucks (protected by a 25% U.S. tariff) and SUVs was entirely logical, and failing to do so would have meant more financial trouble earlier.

Moreover, up to this decade's surging gasoline prices, those larger, U.S.-made cars were what Americans wanted to buy. An example is the Ford Explorer SUV, which was a huge consumer hit. During the 1990s, gas prices were as low as 90 cents per gallon. During that time, U.S. drivers preferred the safety and power of SUVs, pickups and large sedans. And Bill Clinton did not propose a 50-cent-a-gallon gas tax to push gas conservation, or for that matter lecturing Detroit to stop making those vehicles.

In today's much higher gas prices, more Americans are preferring more fuel-efficient cars, a market phenomenon that will do far more to minimize fuel consumption than any Washington mandate. In the economist point of view, mileage mandates are an inefficient way to reduce the use of fuel. They do not limit the number of cars on the road, and owning a car that gets more miles to the gallon often encourages people to drive more miles.

CAFE is one of the ways to smoothen the green beg immediately, while taxing Detroit, its workers and American consumers indirectly. This may be a biter swallow but is significant in the long run and over time. Technology exists to further augment fuel efficiency, but that technology costs money. The Big Three will have to pass those costs along to consumers, which will make their products less competitive to foreign rivals, while yielding a smaller profit margin on those they do sell. In the case if Ford, it lost $12.7 billion last year.

Michigan's John Dingell, the House Energy and Commerce Chairman, has so far refused to include sweeping new fuel-efficiency standards in his energy bill. He wants the more modest, flexible standards favored by the Bush Administration and U.S. carmakers. However, Ms. Pelosi has refused to shift from her plan to pass standards like the Senate's, thereby postponing the House CAFE showdown until the fall or until enough Democrats and wealthy Sierra Club donors can beat Mr. Dingell into submission.

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