Posted by: David Welch on November 19, 2008
Defending Detroit on anything these days is about as popular as justifying the big post-bailout party at AIG. But let me take a stab at some of the disingenuous finger pointing that has gone on in Congressional hearings over a Detroit bailout during the past two days. In his opening comments for the Senate hearings on Tuesday, Connecticut Democrat Christopher Dodd said that many of Detroit’s wounds are self-inflicted. He went on to blame them for ushering in the gas-guzzling suv era.
I’ll agree that many of the problems facing the Big Three are a direct result of management gaffes and union intransigence. But getting American’s hooked on oil? Hang on a second, Mr. Dodd. When Corporate Average Fuel Economy regulations came to pass in the ‘70s, we had two different standards, one of car and one for trucks. The truck standard was much lower, since small businesses, contractors, farmers and the like need pickups. Those pickups need to be powerful to haul and tow heavy stuff. So they were allowed bigger engines and hence, lower fuel economy mandates.
It wasn’t long after that Detroit realized it could meet the American yen for roomy cars with V-8 engines by simply putting them on a truck frame and calling it an suv. By the way, Americans have always loved big cars. Whether it was a ‘60s Cadillac with huge pointy tailfins or the big V-8 station wagons of the ‘70s and ‘80s, bigger has always been better. Gas has mostly been cheap. And then, the only regulatory barrier that could stop America’s love affair with size was crafted with a giant loophole. Going back decades, British political cartoon have lampooned America’s huge cars.
Detroit exploited the loophole to make money, which free market capitalists are schooled to do. They are taught that, by the way, in the land of capitalism that Congress and the President must protect. Americans snapped suvs up in huge numbers because they like what they have always liked, big cars. This went on for nearly 20 years with no Presidential administration or Congress stopping it. Why would they? It would be hugely unpopular with the electorate. Have I mentioned yet that Americans love big cars?
That doesn’t absolve General Motors, Ford and Chrysler from relying far too much on gas guzzlers for their profit haul. Nor can they be excused for disinvesting in smaller vehicles. I mean, Honda and Toyota can say they were into fuel economy before fuel economy was cool. Now that it is, they have the cars and the brand image to sell them, and the better cost base to make money on them.
But I have to throw a yellow flag when someone in government says that it’s all Detroit’s fault. They were, at best, tacitly on the sidelines while America got far down the tracks with poor fuel economy and outsize energy consumption. If Congress doesn’t think bailing out Detroit is a wise investment because the money will be lost, that’s one debate. But saying ‘no’ as a punitive measure against the guys—allegedly the only guys—who created our dependence on foreign oil? That’s government passing the buck and skirting the blame.