Eric Peters

In 1975 Congress created another right hook at the jaw of an already hurting domestic auto industry: Fuel efficiency mandates. Under Corporate Average Fuel Economy (CAFE) requirements, each automaker's combined fleet of vehicles have to meet an average MPG figure or be slapped with "gas guzzler" penalties. The current CAFE standard for passenger cars is 27.5 mpg; for light trucks and SUVs, 20.7 mpg.

Most Japanese cars had no trouble meeting CAFE, as they tended to be smaller and lighter, but American cars had to be downsized, forcing yet another wholesale change in the U.S. automaker's product lineup.

It was also during this era that unions began demanding higher wages and benefits when the domestics, already weakened by the events of the '70s, were least in a position to accede. It became increasingly difficult for GM, Ford or Chrysler to make changes such as closing money-losing assembly lines.

In addition, both the Japanese and European brands enjoyed the artificial leg up provided by their home countries' single-payer health insurance programs, including generous old age/retirement and pension benefits. These "legacy costs" alone add approximately $1,500 to the cost of every new American-brand car, placing U.S. automakers at an enormous disadvantage.

It's true, of course, that the overall quality of domestic brand vehicles was not quite as good as that of the mainline imports from the mid-late '70s through the late 1990s - and that at least some of the blame for that rests with the managers and workers who allowed it to become a problem. Certain lapses in judgment (for example, Ford's failure to update the once-popular Taurus, allowing it to slide into irrelevance) are inexcusable.

On other hand, it's arguable that the disastrous effects of CAFE, the unions and legacy costs triggered these problems -- or made them much worse.

If competitive shackles had not been fixed around the ankles of Detroit's Big Three, it's entirely likely that Ford would not be reeling from the biggest losses in its entire corporate history, that Chrysler would not be in "financial rehab" under the wings of a privately-held equity firm, and GM would not have dropped to a 24 percent market share and second fiddle to Toyota - which just became the world's largest automaker.

This tragedy of events -- and of almost suicidal policy-making -- is still playing out. The Senate is considering increasing CAFE standards to 52 mpg. Senators Mark Pryor (D-AR),Kit Bond (R-MO), Carl Levin (D-MI),and George Voinovich (R-OH) have proposed an alternative -- a 36-mpg standard for cars and 30-mpg for light trucks, a more than 30 percent increase over present levels.

Many -- including the Big Three domestic automakers themselves -- believe a 52-mpg standard could be one blow too many for our beleaguered domestic auto industry to survive. The automakers -- and their union -- support the Pryor- Bond-Levin-Voinovich alternative.

In Detroit these days, all eyes are fixed on Congress.


Eric Peters

Eric Peters is a senior fellow at the National Center for Public Policy Research. His work has appeared in the Wall Street Journal, Investors Business Daily, Houston Chronicle, National Review, Detroit Free Press and Detroit News.

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