In the past couple of months we have seen an unprecedented amount of government intervention in private enterprise. And no where has that been more obvious than with the auto industry. President Obama has literally made the federal government the newest creditor, manager, owner, and now engineer of American cars.
Background of Government Intervention in Auto Industry
The latest government intervention started under the Bush Administration last fall with a $17 billion taxpayer-funded loan to GM and Chrysler. This money was supposed to help the companies get off their feet, and be paid back. That was always doubtful, and sure enough the companies came back asking for more money a few months later. Chrysler is now in bankruptcy, and General Motors soon will be, but the flow of federal money continues, with the federal government giving them billions more as they go through bankruptcy.
The result? A horrible precedent, still more government intervention, and politicized management. Even the bankruptcy process itself has become political, with the White House brokering a deal under which the bondholders of Chrysler receive minimal amounts so that the unions could receive more. GM is also under government control. President Obama effectively fired its CEO last March, and is planning to soon take ownership of 70% of the company.
The Latest Intervention: Miles per Gallon Standards
Last week, President Obama announced plans to mandate a new miles-per-gallon standard which would in practice make cars less safe, and more expensive. In order to meet the new MPG regulations, car companies will be forced to re-design their cars and the plants that make the man expensive endeavor that will be passed onto consumers through increased car prices. Additionally, in order to meet the new standards, cars will have to be smaller and thus less safe.
These regulations will leave both Americans and car companies with few options. These more expensive, less safe cars will also be smaller and have less horsepower and towing capacity. Affordable SUVs to safely shuttle the kids around may become a thing of the past, as they will not meet these new government-mandated miles-per-gallon regulations. Americans will be left with limited options for new automobiles, and car companies will struggle to profit under the new system. Only 11 of the car models on the road today meet the standard that Obama has set, so old cars will have to re-designed. Previous and current investments in other vehicles that do not meet the new standard will be lost.
If the car companies are struggling now, more regulations are not the answer.
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