Today, President Obama signed an order that allows all 50 US States the ability to set their own fuel economy and emissions standards. Although this order has been praised for its emphasis on individual rights it is a poor decision. Each state can create its own fuel economy and emissions rules, which will create 50 auto markets, 50 regulatory authorities, and 50 emission testing procedures. What is the net effect? The net effect? Higher automaker and consumer costs, as well as a host unintended consequences.
Consider California’s strict fuel economy and emission standards, which were adopted a few months back.
What California will do now to enforce its own standards?
- Californians will have fewer models to choose from as many automakers will stop selling certain models in California. This is similar to what VW did with its Jetta Diesel a few decades back. It was done in order for the state’s fleet fuel economy and emissions standards to be met. Many Californians will be happy to no longer have the option of buying certain trucks, SUVs and gas-guzzling cars. However, there will be some California residents who will not.
- What is the surprise? Different rules in different states equals more expensive vehicles. Auto business is all about scale. Automakers could have to purchase different parts depending on the state they are selling their vehicles in. This will be costly.
- The future will be a great time for automakers that focus on small and fuel-efficient cars. The U.S. auto sector will suffer as Toyota and Honda will be able to grab more market share in the largest auto markets in the country. While some may be applauding, I believe it is not in the best interest of anyone to see GM and Chrysler fail because they are unable to compete effectively in California due to a poor model mix. This is not a problem they created, but it is an economic crisis that we should address.
- People will cheat. People will cheat, just like Californians did in 2006 when they bought new VW Jetta diesels. They will fly or drive to another state and illegally register the vehicle. Then, legally register their vehicle in California. This is all to avoid California’s strict emissions and fuel economy regulations. You don’t have to go back more than three years to see examples of this behavior.
- California’s vehicle registration and sales taxes will decline as more Californians leave California to purchase and illegally register vehicles in other states.
- You’ll see more Ford and GM dealerships close as Honda and Toyota take market share in California. California will lose its jobs.
This rule will only serve to weaken California’s economy and auto market. It is the epitome folly. All of the above is a repetition of past events. Aren’t we all supposed to learn from the past?
The automakers may be able to stop this order through the U.S. Consitution’s interstate commerce clause. But it will be interesting. Shame on President Obama for allowing this to happen. It would have been better for our country if you simply established a strong rule that everyone must follow.