Kneale: New CAFE Menu Will Give Detroit Heart Attack

Dennis Kneale
CNBC Media &
Technology Editor

When you're as wildly popular as President Obama, who needs Congress? So it is that the rookie in the White House imposes a go-green-or-die fiat on the filthy and woeful auto industry.

The White House's new and tougher gas-mileage rules force a 42 percent increase in new cars’ miles-per-gallon, and a 30 percent rise for trucks, by 2016. All to curb gasoline usage by 1.6 percent—by the year 2020. 

Will someone please tell me what the hell we’re thinking here?

This amounts to one of the most severe and sweeping enviro-reforms ever mounted by government. And look Ma—no hands in Congress had to lift a finger to vote. This is all bureaucracy, baby, courtesy of the Environmental Protection Agency and the U.S. Department of Transportation.

Obama said yesterday that the new CAFE (Corporate Average Fuel Economy) rules would fuel Detroit on a (dubious) crusade to develop and sell greener cars. (Ahem, at a time of still-cheap gasoline.)

It will mean "certainty" for the Motor City, Bam says. Yeah—the certainty of a heart attack.

This extra burden comes at the worst possible time for GM , Chrysler and Ford . And it won't work—it just looks good. Which kinda sums up a lot of new moves coming out of Washington these days. We debated this last night on CNBC Reports.

The president proudly unveiled his new diktat yesterday, flanked by a gaggle of grinning yes-men: governors and greenies and execs from carmakers American and foreign.

The GM and Chrysler guys had no choice but to be there, wincing beneath the grins: They just guzzled through $25 billion (CHK) in TARP taxpayer loans in a last-gasp bid to survive. Would they ever dare differ with Bam on his bid to annex their product-design labs—especially when they need billions more?

So let me point out some fatal flaws in this green decree:

• It will result in Americans driving more not less. When we get better mileage, we drive more than usual, negating much of the savings, says Penn State’s Andrew N. Kleit, who has written widely on the topic.
• The key to better mileage is lighter-weight cars—in which people die more often in traffic accidents. Since CAFÉ passed in 1975, smaller cars have killed almost 50,000 more people than otherwise would have died on the roads, the National Highway Traffic Safety Administration reported in 2002. CAFE kills up to 3,900 extra people each year, a study by Harvard and the Brookings Institition states. It finds that for every 100 pounds less that an auto weighs, up to 780 more people die in traffic accidents in a year.
• It will add $600 to the price of a car, further worsening the Big 3’s already sizable cost disadvantage. Toyota, Honda and Hyundai already pretty much meet the stricter standards.
• It will force Detroit to build wimpy li’l cars most consumers don’t want to buy. CAFÉ rules long have distorted industry production. Automakers churn out loss-leader subcompacts purely to lower the average mileage for their entire fleet, freeing them to make higher-profit SUVs. At Ford, the F-150 truck provided 120% of profits, back when it had profits.

I know, guys: We gotta fix this fuel problem sooner rather than later, we have to end our reliance on foreign oil. Blah blah blah. Sure we do—but not by Presidential fiat, not by way of a self-perpetuating bureaucracy. We need a free-market solution: Make better, cheaper, safer lower-fuel cars that we want to buy, and we’re happy to start driving them.

Not because Bam said we should, but because we choose to do so.

• Check out Dennis' Parting Shot

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