New EPA Mileage Standards Could Stimulate Auto Sales

Friday, January 7, 2011

A common view of government regulations is that they are a necessary evil. They can help in areas such as safety, but they can also interfere with free choice and efficiency – plus, they can be costly.

However, there is an oft-overlooked benefit: Regulations can spur economic development. General Motors’ (GM) story in the 1970s is a prime example and could provide a view of the future.

EPA mileage rules effect: Technological gains

The Wall Street Journal yesterday described four improvements being worked on to meet the new mileage requirements: “Technology That Breaks the Car Industry Mold.”

“As the auto industry faces tougher fuel-economy standards, engineers are working on longer-term fixes for what ails today’s models: too much weight, inefficient engines, a troubled fuel source for gasoline-powered cars and recalcitrant batteries in electric ones.”

The internal combustion engine is not dead yet

A while back, Consumer Reports (I believe) had an article in which the auto research departments were interviewed about the future of engines. Surprisingly, all said the internal combustion engine could be improved for significantly greater efficiency. Scientific American had a similar article last year: “Better Mileage Now–Improving the Combustion Engine.”

The new mileage requirements are just the incentive to accomplish those gains.

For proof, look to the 1970s –

1. The cause

Decades back, Detroit was accused of having a “planned obsolescence” strategy. The complaint was that new exterior designs and less sturdy internal components ensured that owners would soon be back in the showroom, buying anew.

Even with growing competition from foreign manufacturers, Detroit continued its ways until two major events occurred:

  1. OPEC took control of oil prices, driving them up. With Detroit’s cars getting poor mileage (e.g., station wagons at around 10 MPG), auto owners were especially hurt.
  2. Cleaning up pollution became a national cause, leading to the creation of environmental regulations, enforced by the new Environmental Protection Agency.

2. The effect

Now Detroit had no choice. The big three needed a major overhaul both to meet the EPA’s requirements and to rebuild their seriously damaged competitiveness.

The solution was applied research, development and “real” (vs. superficial) design.

3. The result

Everything came together in 1977, and the best example is General Motors’ redesign of the Chevrolet Caprice. The changes were radical and considered risky. High acclaim (named Motor Trend’s Car of the Year) and excellent sales were the result. (*)

In Wikipedia, there is a good description of what GM did – See section “1977-1979” in “Chevrolet Caprice.”

So…  The EPA mileage standards are boosting automobile research, development and design activities. The result could be sales gains as the new autos hit the market.

(*) Ironically, GM spent much of the 1990s and 2000s lobbying against further EPA mileage limit increases.

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