Monday, November 05, 2007

CAFE - Automaker's best interests

ArlingtonBlue left a comment on my post about CAFE (not CAFÉ) the other day - thank you Arlington, I look at the stats and see I have many readers, but few posters; it's nice to have some dialog.

What was interesting about the comment was the suggestion that CAFE was not in the automaker's best interests. This is something I better need to understand. The typical line of reasoning over any regulation is that the regulation is bad for the auto companies. Catalytic converters, low emission vehicles, seatbelts/airbags, what have you - if it's regulated, it's bad news. However, I look at things differently, so would love to know where I'm wrong. Right now the car companies are in a very competitive industry, which little to differentiate vehicles, other than price (at least Ford, GM, and other such companies are often flogging "FACTORY INCENTIVES", whereas Honda, less so). Surely when a new regulation comes onboard that affects all car companies equally, this provides a new potential source of competitive advantage? If a new regulation came in that all cars had to have huge chrome fins, and Cadillac was the best car maker in the world at chrome fins, wouldn't they have a huge advantage over Hyundai?

So, for an automaker to argue against a regulation means that a) they don't think it is being applied uniformly, or b) they basically are admitting that they suck and don't have a chance in hell of competing under the new regulatory scheme. Regarding a), sometimes regulations only affect car makers who produce above a certain volume. So, GM would be unfairly biased a kit car manufacturer in keeping emissions down. Usually, this isn't any issue by the very nature of the fact that the kit car manufacturer isn't truly competing with GM. Regarding b) if a car maker is saying that they have no chance in competing under a new regulatory environment because they are not as innovative and skilled as their competitors, then I think Adam Smith (and myself) have opinions over what should be the long-term viability of that car company.

Anyone have theories over why economically rational automakers should oppose any regulations, and not see them as opportunities?

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