The “Can’t-Do” Approach of the American Auto Industry

Over half a century ago, the American auto industry fought against seat belts. In 1970, they fought against the requirement that they install catalytic converters to reduce air emissions. They have opposed airbags and other safety standards as well. Today, they continue to fight against reducing emissions and improving fuel economy. The auto industry is very good at fighting government interference in the form of regulation, but seems to be OK about government interference in the form of a bailout. Despite the complaints of top management and lobbyists, auto engineers have managed to build the safest and cleanest vehicles in history, and if the Trump Administration fails to roll back Obama-era requirements, this progress may well continue in coming decades.

While the most visible political news last week was in Washington D.C. with the defeat of the new healthcare bill, a less visible piece of environmental politics was taking place in California. In the New York Times, Hiroko Tabuchi reported that:

“California’s clean-air agency voted on Friday to push ahead with stricter emissions standards for cars and trucks, setting up a potential legal battle with the Trump administration over the state’s plan to reduce planet-warming gases… California can write its own standards because of a longstanding waiver granted under the Clean Air Act, giving the state — the country’s biggest auto market — major sway over the auto industry. Twelve other states, including New York and Pennsylvania, as well as Washington, D.C., follow California’s standards, a coalition that covers more than 130 million residents and more than a third of the vehicle market in the United States.”

The political battle between these states and the federal government will place two conservative principles in conflict: state sovereignty and deregulation. It is unfortunate that a symbolic political battle will replace what should be a society-wide effort to improve the efficiency and environmental performance of personal transportation.

Although more and more people are seeking urban lifestyles with less driving and more walking and mass transit, American land use patterns have been built around the automobile and personal transportation. We are all stuck in one giant traffic jam as more of us crowd the highways. The automobile is a necessary part of American life, and better gas mileage and lower emissions are important national goals. Until President Trump’s election, the auto manufacturers supported the ambitious emissions and fuel efficiency goals set by the Obama Administration. Now, with the chance to escape these requirements, they are lobbying to get rid of them. They complain about cost and feasibility, when they should welcome the opportunity to develop the technology needed to modernize their product line.

Vehicle manufacturing is a global business with a global market. The move away from the internal combustion engine is a matter of when, not if. The race for motor vehicle market dominance will be won by companies that develop the best batteries and best engines that run on battery power. Do we really want to cede that business to manufacturers in Europe or Asia?

California’s rules are ambitious but they are technology forcing. The market influenced by California’s standards includes over one hundred million people, and California’s influence is global. After World War II the United States was dominated by its California dream. When Los Angeles and smog became synonymous in the 1960s, California developed ambitious environmental goals and despite the state’s continued rapid growth, its environment today is cleaner than it was in 1970.

The conservative argument against these standards is that if the market wants efficient and low-polluting cars, then manufacturers will produce them and we don’t need government to push them into this new business. But history tells us we do. Government intervention can speed the process of innovation and create certainty about key elements of the market in the future. That will help generate capital required for new products. The need for innovation to meet ambitious standards will provide organizational support within companies for engineers that want to build something new. The near bankruptcy of the American auto industry tells us that this is a business that doesn’t always look to the future. Technology forcing rules can strengthen internal change agents and encourage the development of vehicles that will be globally competitive.

The president’s deal with the auto industry is that he will give them regulatory relief as long as they build their cars in America and create jobs here. Auto manufacturing is increasingly automated and dependent on a global supply chain and so President Trump continues a futile effort to recreate an industrial past that will never be rebuilt. Global sourcing and automation are not political or ideological statements, but methods of 21st century manufacturing. These methods are used to build the highest quality products at the lowest price. The president’s “deal” may score some political points, but in the long run will either be ignored or make the American auto industry less competitive.

Meanwhile, the challenge posed by California and other states may well require auto manufacturers to develop the technology needed to meet more rigorous state standards. It would be foolish to ignore the auto market represented by California’s 44 million car-dependent people. Vehicles developed for California’s market could be sold throughout America, but those developed to lower national standards could not be sold in California or the states that follow California’s lead. The real technological challenge will be to build the large SUV-like cars preferred by Americans to meet emissions and fuel efficiency standards. The company that develops such a vehicle will sell a lot of them, and despite the pessimism of senior auto management, it might be possible to build one.

Air pollution and safety regulations have provided opportunities for engineers to examine every aspect of the automobile and the result has been a modern auto filled with electronics and computer controls and lighter, more durable materials. The self-driving car is a direct outcome of efforts to provide more conventional autos with sensors, cameras and controls that help avoid accidents. Cornell Professor Ann Johnson’s 2016 paper on automobile innovation presents persuasive evidence of the key role that regulation has played in driving technological innovation in the auto business and she concludes that:

“In the case of automotive innovations, it is clear that high emissions standards did force the development of new technologies by jumpstarting a quest to improve the car, to make it less environmentally taxing and harmful to human health… Technology-forcing regulations can be effective and the opposition of industries affected by them is usually temporary, only a factor until new technologies are available.”

It is unfortunate that an intelligent discussion of regulatory strategy and effectiveness is not possible in today’s ideologically charged political process. We need to get past the idea that all regulation is good or all regulation is bad. Regulation is an effort to influence corporate and individual behavior. The behaviors we seek with motor vehicle regulation are those that will deliver safer, less polluting and more cost-effective transportation. Some rules bring us closer to those goals; others do not. We need to try, assess and revise rules, not dismiss them as anti-free market. Automobile manufacturers need intelligent regulation, but that is not likely in the increasingly dysfunctional federal government.