Government destroying the auto industry

I was recently looking for a compact pickup truck. Something small. After looking, what I found was that the smallest trucks are what used to be called mid-sized trucks. I wondered why the smaller compact ones were no longer made. It turns out that the answer is: government.

The biggest stumbling block is the chicken tax. Passed in 1963, this law is a protectionist tariff imposed by the U.S. in 1963 after Germany tripled the duty on frozen U.S. chicken products coming into that country.If a small truck is imported into the US, it is subject to a 25% tax. This has a big effect on not only "foreign" car makers, but the domestics as well. Why? Because it is a tax based on where the truck is MADE, not where the company is based. (After all, Toyota USA is a domestic company.)

One is Ford Motor Co.’s Transit Connect small van, which the firm builds in Turkey and wants to sell in the US. Another is a compact diesel pickup truck that Indian manufacturer Mahindra wants to offer U.S. buyers. The problem is that small vehicles that are subject to this tax cannot compete with larger, midsized trucks, because a $12,000 truck when imported becomes a $15,000 truck, and is now in the price range of the midsized trucks. 

The tax started in a classic trade war between nations but now is a powerful protectionist tool for U.S. interests. The hefty levy forced Honda, Nissan and Toyota to build trucks here, but Ford and Mahindra have other ideas until they can prove the market is ready for their products.

But what about building them here? Well, you can thank CAFE for that.  CAFE (Corporate Average Fuel Economy) came as a result of the 1973 oil embargo, as a means to mandate fuel economy targets for cars and light trucks. Over the last four decades, the standards have evolved, with the latest iteration being the targets set for fuel economy in the year 2025. The 2025 targets were released this summer, and comprise 1,944 pages full of legalese.

One of CAFEs biggest impacts in recent times has manifested itself in how auto makers classify products. Under CAFE, vehicles can be labeled “passenger cars” or “light trucks”, with the latter category required to meet less stringent standards for fuel economy and CO2 emissions. A decade ago, the Chrysler PT Cruiser was the most egregious example of this. The PT Cruiser was designed to meet NHTSA standards for classification as a light truck, for the express purpose of raising Chrysler’s light truck average fuel economy. At the time, the minimum fleet average for passenger cars was 27.5 mpg CAFE, while for light trucks it was 20.7 mpg CAFE. A small, four-cylinder vehicle like the PT Cruiser was effectively a “ringer” for Chrysler’s fleet average. The year 2000 CAFE targets discussed above translate to 21 mpg IRL for passenger cars and 15 mpg IRL for light trucks.  A “light truck” like the PT would obviously have no trouble surpassing these standards.

 On the surface, the footprint requirements can be viewed as logical; a compact, fuel-efficient car like the Honda Fit, should be able to hit tougher targets, by virtue of its small size, aerodynamic profile and powertrain choices. It manages a respectable 28/35 mpg. The Ford F-150 has a very different mission; it must be large, durable, powerful and able to meet the needs of a full-size pickup, and will naturally be less conducive to achieving the kind of fuel economy that a Fit can.

Unfortunately, the footprint method has the opposite effect; rather than encouraging auto makers to strive for unprecedented fuel economy in their passenger car offerings, it has incentivized auto makers to build larger cars, in particular, more car-based crossovers that can be classified as “trucks” as used to skew fleet average figures. Compact trucks have become nearly extinct as a result.

 Because of these regulations and taxes, it costs $1 billion at minimum to design and test a new model. So this is why we get so few new cars that are truly new. What we mostly get is minor changes to existing designs, and they slap a new name on it. So the small truck has either been taxed or regulated out of existence. Now you know...