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Obama MPG: Crushing the auto industry, one mandate at a time

Posted: August 3, 2012 at 8:45 am   /   by

The line has been drawn in this year’s presidential election. In one corner you have the challenger Mitt Romney, characterized by Obama as the big business CEO with the heart of stone who is willing to destroy a failing business and gladly fire any poor sap left standing. The incumbent Barack Obama is a progressive, big government, bailout king willing to offer a friendly hand out to the little guy who “just needs a chance” while demonizing business owners as ungrateful to the government infrastructure that spawned their vision and success.

While both are clearly extreme representations, it is obvious who has actually spent time in a private sector business doing more than filming a campaign ad. With Obama’s latest set of environmental standards on the auto industry, we get a perfect case study in how the President’s lack of real-world business experience can cripple an industry with good intentions.

Starting in 2025 automakers will be required to have a fleet-wide average of 54.4 miles per gallon, twice the current requirement. Though a seemingly simple directive, it proves just how short sighted and out of touch Obama is with the complexities of doing business today. Auto

dealers who are just beginning to see a turnaround in their fortunes warn that these regulations could bring the auto recovery to a screeching halt. The added cost of producing vehicles with such efficiency would add an average of $3000 to each car which will make financing more difficult, leading to a decline in new sales. Despite pocketing a total of $8200 over the life of the car in gas savings, some believe buyers will lean more toward staying in their current cars or looking at less efficient used cars as alternatives.

The efficiency changes were recommended by the EPA and National Highway Traffic Safety Administration and are estimated to cost the auto industry about $157.3 billion. Even without the direct cost to car makers, you still have $57 billion in gas tax revenues to the U.S. Government that will have to be replaced. Obama will probably elect to raise taxes on gas purchases but cuts to road repairs and mass transit budgets could also be used as solutions.

Regardless of Obama’s final plan, his lack of vision and understanding of corporate economics is glaring. Drivers would love fuel efficiency; some will even pay a premium to have it. However, regulating a whole industry in the current economic climate with mandates that fly in the face of free market principles is puzzling. Romney has offered his approach as a contrast, “The best approach is to try and build vehicles that people will want, rather than having the government telling the companies what they must make.”

MPG cannot be a forced solution in a multi faceted, complex industry like auto making. True groundbreaking change could come on day one for Romney when he signs off on the Keystone Pipeline, eases offshore drilling regulations and clears the way for natural gas to reach its potential and gets out of the way to allow automakers to provide solutions for consumer demand. A return to truly free market principles by a leader who understands business cannot come quickly enough for Ford, Chevy or voters.

Obama MPG: Crushing the auto industry, one mandate at a time