The Louder Message?

Today's Washington Post includes an op-ed on energy policy by Representative Sherwood Boehlert (R, NY,) chair of the House Science Committee. He argues that our approach to energy has been all talk and little action, and he draws an analogy to BP's recent problems in Alaska and elsewhere. He concludes that the market won't deliver conservation without being forced by government to produce more efficient products, by means such as more stringent Corporate Average Fuel Economy (CAFE) standards. I wonder, though, if such a move would send any louder message than the one currently being delivered by the voluntary decimation announced by Ford Motor Company last week.

Rep. Boehlert is mistaken in several details, but his assessment of the big picture is justified. It's incorrect to say that consumers haven't had the choice of more efficient cars for many years, or to think that simply changing CAFE standards will alter the industry's sales mix in ways that fuel prices haven't. He also mis-characterizes the long-overdue reassessment of a federal ban on offshore oil and gas drilling that was founded on 30-year old environmental assumptions and is simply incompatible with any notion of US energy security. But he is correct that merely promoting domestic production doesn't constitute an energy strategy, which must include a comprehensive view of the demand side, as well.

However, rather than remaining aloof from the issue, the market has sent a powerful message about the importance of efficiency. Sustained high gas prices utterly demolished the product strategy of the second-largest US carmaker, which was overly reliant on sales of big SUVs and pickup trucks and lacked sufficiently attractive cars and crossovers, to an even greater extent than its slumping US counterparts. Ford's massive employee "buyout" program was prompted by massive financial losses and a 3-year slide in their equity value, to levels that would put the company into play--if anyone else wanted to be saddled with their problems. Their present action will staunch the bleeding, but it's a poor and tardy substitute for the kind of efficiency-based product strategy Toyota launched nearly a decade ago, and that is carrying them to within striking distance of the #1 spot in the global auto industry.

I also don't believe that stricter CAFE standards would have averted this situation. Rather, two quirks in CAFE have contributed greatly to the present, sorry state of the US car business. The well-known "SUV Loophole" paved the way for building highly-profitable but grossly inefficient truck-based SUVs, and the Flexible Fuel offset, by which inexpensive ethanol compatibility turned millions of SUVs into sub-compacts on paper, delayed more meaningful responses. CAFE standards alone, even if they were simplified to eliminate all loopholes--a hard prospect to imagine in contemporary politics--are no substitute for sending consumers the signals that will change their buying habits. Nor do they replace sound strategic planning on the part of auto makers, when the signposts of rising oil prices have been evident for years.

The stricter CAFEs that Rep. Boehlert advocates won't force consumers to buy efficient cars; they will merely stimulate a wider array of choices. Let's hope that Ford's painful lesson has been learned by all, and that it won't just be Japanese, Korean and Chinese auto makers that benefit. As it was in the 1970s, it is too late for GM, Ford and Chrysler to get ahead of this curve and turn these trends to their advantage. Let's hope it's not too late for them to catch up, at all.