Not Our Fathers’ Auto Industry

History Versus Economic Models

The U.S. automotive industry operates in a highly regulated environment, a fact largely overlooked in recent congressional hearings over federal loan guarantees to domestic firms.  These regulations affect more than three million American blue- and white-collar workers employed in the industry, along with shareholders and other investors, including retirees (and their spouses) vested in pension funds.

The industry’s burden of regulation is explained to investors in corporate annual reports filed with the U.S. Securities and Exchange Commission.  General Motors, the largest publicly traded domestic automaker, is explicit in detailing the “risk factors” created by government regulation, as it explains in its 2008 10-K report: “We are affected significantly by a substantial amount of governmental regulations that increase costs related to the production of our vehicles.  We anticipate that the number and extent of these regulations, and the costs to comply with them, will increase significantly in the future.”

In looking back at the record of several decades of government standards for the auto industry, one trend that emerges is the tendency of Democratic-controlled Congresses and Republican presidents to increase the industry’s regulatory burden.  Among these onerous constraints are the Corporate Average Fuel Economy (CAFE) standards.  CAFE was passed in 1975 by a Democratic...

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