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Car Guy
Why the Majors Love Mandates
Once you’re “too big to fail,” you’re on Easy Street.
I’ve written previously about the add-on cost of government-mandated “safety” equipment such as multiple air bags and (most recently) stability control, tire pressure monitors and (soon) back-up cameras and (very possibly) in-car Breathalyzers, too.
It’s hard to pin down the exact per vehicle cost of these things — chiefly because they’re not listed as individual options but rather folded into the “base price” of the vehicle — but a reasonable estimate is probably around $2,500 or so at the point of sale (this naturally includes mark-up).
But the aspect I’ve not written about is the opportunity cost imposed by these mandates. The stifling effect, in other words, on what-might-have-been.
And also, the probable fact that the major car companies are happy about both of these costs — the additional built-in profit-per-car as well as the stifling effect.
As the nattily dressed hitman in Pulp Fiction put it, allow me to elucidate:
Let’s say you are a bright backyard engineer — maybe even an actual engineer. You like to design things and one day hit upon the notion that maybe your design for a new car would be something people might be interested in. That you could do it better or less expensively or just more interestingly than the established players in the field.
Sixty-odd years ago, a guy named Preston Tucker had such an idea. So, like Tucker, you get to working in the garage out back. The project begins to come together and as word spreads, you discover that yep, there are people interested in what you’re doing.
Unfortunately, some of those people are employees of the government.
Specifically, the Department of Transportation and the Environmental Protection Agency. They will swoop in with turgid — and then threatening — demands that you sell no cars to the public (no matter how much the public may want those cars) until those cars have complied with every line-item regulation in their repertoire of regulations and codes. Oh, and not just that. Even if by some miracle your new car produces less pollution than a new Prius — even if it is more crashworthy than a new Mercedes S-Class — you will still be required to demonstrate it to their satisfaction. Which, if you’re not familiar with the way a car company complies with federal ukases, involves (for example) destroying dozens of brand-new cars in various types of crash tests to placate Uncle Sam’s minions.
And who can afford to destroy a dozen perfectly good brand-new cars? A major automaker can — but not you.
This one thing alone likely will (and in fact does) constitute a crippling obstacle that will make it economically impossible for you to sell your new car to the public. Even if, like the ‘48 Tucker, your car is actually more advanced and innovative than the cars being sold by the majors.
Maybe you’ve figured out a way to cut the weight down to 1,600 pounds by using a spaceframe and lightweight composites — and so the car gets 80 MPG. Maybe you found out, after doing some surveys of potential customers, that a simple, light, fuel-efficient car was very much desired. One that didn’t come with $2,500 (or more) worth of government-mandated “safety” equipment but which did cost $2,500 less than a car with those items. So you decided to try to build it — knowing they (the buyers) would come.
Instead, the government came.
Down. Hard.
First you’d be shut down; probably fined — then possibly jailed. If you declined to pay the fine or (much worse) had the insolence to continue building cars the public — vs. the government — actually wanted to buy as opposed to forcing you to build.
About the Author
Eric Peters is an automotive columnist and author of Automotive Atrocities: The Cars You Love to Hate (Motor Books International) and a new book, Road Hogs.
Letter to the Editor View all comments (26) | Leave a comment
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Alert1201| 9.20.11 @ 6:25AM
I had a cousin who designed a highly efficient wood burning stove in the North West, somewhere around Seattle. For a few years he made a tone of money but eventually either the EPA or some state agency required pollution control on the stoves that destroyed their efficiency. So he had to shut his company down, fired all his employees and got a job as a union welder.
Government agencies just doing their job.
Cromulent| 9.20.11 @ 10:07AM
You need to provide more details on this. It would make for a pretty good story.
Alert1201| 9.20.11 @ 11:06AM
It happened in the late 70s and I have not seen the cousin in about 30 years.
Brother John| 9.20.11 @ 7:12AM
That *IS* their job. Such regulations are put in place by allies of large companies to shut small ones out of the market to make life easier on themselves. This was the chief effect of the legislation resulting from "The Jungle" in 1907 - small meat packers were driven out of business by costs imposed by the government at the behest of the larger, more established ones. And the government is only to happy to help them out, because first, it increases their own power for its own sake, and because second, a handful of big, slow companies are much easier to push around in a given industry than several dozen smaller ones.
That's why there are so few American car companies - because everyone wants it that way except for the people who buy cars.
JimH| 9.20.11 @ 8:35AM
Tell it Brother John. This is not just true in the care biz. The large corporations can much more easily absorb the cost of additional regulation than their smaller competition, Hence they don’t fight it and sometime encourage it.
Old Soldier| 9.20.11 @ 8:54AM
How many companies will never get off the ground because of SOX, Dodd-Frank, the EPA, Interior, etc...?
Add in all the state and local regulations and I cannot imagine the hassle of launching a start-up company. Seems like dealing with the government is more work than actually producing and selling products or services.
JimH| 9.20.11 @ 8:58AM
Sorry, I meant CAR not care.
Dixie Pixie| 9.20.11 @ 3:59PM
Greetings JimH
Ether way, you had it right.
In both car and care (i.e. Healthcare) industries, government regulations and laws are the determining agency in the structure and operation of those industries.
That is why government believes it can override markets, economics and even reality in its rulings.
The fact that industries die when markets, economics and reality are ignored only confirms the rulers belief that it has the power of life or death over that industry.
d clowes| 9.20.11 @ 8:57AM
the same gate keeping effect exists in favor of existing businesses in local and state regulations. it is almost always the existing businesses in bed with their supposed government masters to keep competition down by supporting political controls of business, all in the name of the "public good".
P.Smith| 9.20.11 @ 9:09AM
My facts here may not be entirely correct, but I will do my best to sort of prove Mr. Peters point:
Back in the mid to early 1970’s, or maybe the late 1960’s, there was legislation considered by Congress to mandate the installation of antilock brakes on big road going semi-truck trailers. The technology was only in the beginning stages, but a few engineers thought that it was feasible. The large trailer manufactures were all for this legislation (and were probably the ones who first suggested it), even though it would be a very expensive requirement, and so lobbied our elected representatives for passage. The law was eventually passed by congress even though the technology was not worked out completely. The two main consequences of the law were this: trucking companies began to refurbish their older trailers instead of purchasing new ones, because of the significant additional cost; and smaller trailer companies went out of business, or shifted into other types of business, because they could not afford the development cost of the new technology. Eventually the major trailer companies lobbied to get rid of the new anti-lock braking requirements, because of the technical problems and reduced sales. Congress did away with the braking legislation, but just about all of the small manufactures were out of business by that time, which I believe was the ultimate goal of the larger companies.
Moe Blotz| 9.20.11 @ 6:38PM
FMVSS 121 was shoved down our throats (or up another orifice) and the anti lock brakes did not work.I pulled an FMVSS121 equipped trailer back when and the anti-lock sensor caused huge vibrations from cycling while the brakes were engaged on a dry road. The standard was rescinded because the stupid brakes were more dangerous than trailers not equipped. Most fleets disengaged the antilock systems when the fleet managers discovered their brake blocks were wearing out prematurely. Another case of our benevolent government forcing unproved technology upon an industry,using the public as guinea pigs.
Moe Blotz| 9.20.11 @ 6:40PM
The year was 1979.
Bill| 9.20.11 @ 9:25AM
Once a business is "too big to fail," isn't it almost by definition anti-competitive, a monopoly, and in violation of the Sherman Antitrust Act?
When government is powerful enough to tell private commercial enterprises what product they must sell and what qualities it must have, isn't that a signal that government is at, or approaching closely, the point of tyranny? How about when government can tell you must buy health insurance or pay extra taxes?
Bob K.| 9.20.11 @ 1:15PM
Have you considered that the "Government" here is really the Bureaucracy of the Government and that no matter who we send to Washington DC to change this they will have to work with this Bureaucracy who will actually tell them what to do?
Elected officials come and go every 2,4 or 6 years. Bureaucrats and Federal Judges stay there for a generation! They don't care how we live out here in fly-over country just as long as they live good and have the power to keep on living good!
Bill| 9.20.11 @ 1:32PM
Things began to fall apart government-wise when the idea of delegating executive and lawmaking power to administrative agencies caught hold. So I agree with you.
When we need non-politicians to act as experts in regulating things that politicians can't exercise control over, we've given up on government of the people, by the people, and for the people in favor of government that merely CLAIMS to be for those principles.
Dixie Pixie| 9.20.11 @ 5:06PM
Bob K....I think you have hit on a important point.
One of the surprises of the 2010 election was how the permanent government of the federal bureaucracies was able to totally ignore the “Will O The People”.
Under the old spoils system any governmental position could be changed upon a change of the controlling Party in government.
When the civil service reforms were implemented to protect the federal workers jobs from the whims of Congress it was not recognized that Congress was giving up control of the Federal Bureaucracy.
Now, only the Executive Branch can control the permanent government by controlling their function and even that only gives limited control.
Even the power of the purse strings has proven useless as the Federal Bureaucracies can just move money around from other offices.
As the Gulf Oil Rigs Affair proved, not even the Federal Courts could control even one small Federal Office as the bureaucrats could issue rulings faster than the courts could strike them down.
Also consider, the Federal Bureaucracies could issue a ruling at little to no cost to themselves but it would take millions of dollars to challenge a ruling.
When the bureaucracies refuses to do its job or engages in a slowdown strike, nothing can make them move if they do not want to move.
Bob and Bill, you have hit on the major challenge of the 21st century is to regain control of the Federal Bureaucracies.
Because if the “People” do not control the Federal Bureaucracies then those bureaucracies will certainly control the “People”.
Bob K.| 9.20.11 @ 10:18AM
Inflation affects other things than money.
Bureaucracy is one of those things bloated by inflation.
In the old days bureaucrats were people who did the elected representatives bidding. Now they are running our country. They answer to no one. They write the laws for the people we elect and they interpret them. Why do you think Speaker of the House Pelosi said "we have to wait until after the bill is passed before we will know what is in it"?
It will take a revolution of one kind or another to replace these bureaucrats! They will have to be thrown out into the street and the courts will have a say about that!
It is easier to replace the politicians we elect but the new ones that replace them will still have to work with an entrenched and hidebound bureaucracy bent on maintaining it's power.
TrueBlue| 9.20.11 @ 12:05PM
It would require effort by the entire country to basically elect a new person to Congress the next time they are up for office in order to get anything to change. Unfortunately that won't happen as long as people/countries are willing to lend us money to keep our welfare state happy.
Dan Hirsch| 9.20.11 @ 10:25AM
Eric;
Adam Smith, remember that ol' quack, was an early observer of the fact that when business and government work too closely together that the small man should look to his pocket.
You also might want to check up on the latest incredibly anti-competitive legislation that was just passed, the America Invents Act. One of its most anti-competitive clauses changes our patent system from "first to invent" to "first to file." I have marketed inventions in the past, sometimes before initial filings were completed. In that case, calling on any company of sufficient size to have staff Intellectual Property attorneys would be incredibly risky.
Say, you describe your invention to GE, non-compete, non-disclose documents nicely, neatly signed, to get a read on how the market might respond to your new product. Then, somehow, magically, another GE division's legal department files a patent application for your invention with the US Patent Office. Under the wonderful America Invents Act, when you file your patent USPTO rejects your application, informing you that GE is "first to file" and you damn well better not infringe on their intellectual property, thank you. Another blow for freedom-for large statist capital.
Yes, this Act passed our newly elected House of Representatives. If you complain they will protest, 'we had to make this change to simplify international patent filings because that's how the Europeans do it.' Talk about racing to the bottom! I thought we all left Europe and then threw their infiltrators (as opposed to nascent Americans) out of our country two hundred and something years ago!
You can always safely bet your last dollar that whenever our government does something "new" because the Europeans do it, it's a really, really bad idea. Have they started putting roundabouts in your neighborhood? Good for body shops- bad for pedestrians, neighbors, semis, bicycles....SHEESH. Sharia law is just around the corner!!! They do it in Paris and Londonistan!
We are so screwed.
Ad another thing, did you know that GE was formed by JP Morgan repossessing Tom Edison's patents when Tom missed a loan payment. You don't read that in GE's glossy, sunny corporate histories.
It is too bad that these crony capitalists and government regulators don't know the first rule of being a parasite: "The successful parasite does NOT kill the host."
DTOM
DH
TrueBlue| 9.20.11 @ 12:10PM
Excellent, now to look up exactly who voted for it and mark them all for ousting in 2012.
John Navratil| 9.20.11 @ 5:05PM
Dan Hirsch,
I was brought up to believe that the patent allowed the little guy to profit from his invention. It might be true when the engineering is obvious once seen. Eli Whitney's experience might be constructive as he spent most of his life battling patent infringers. Bell was first to file and the poor bastard who was fifteen minutes behind him remains nameless.
I was building an instrument for a client to fill gas bottles precisely and was stunned to find that the process of using a metering valve to taper off flow to provide a precise fill is patented. A patent is supposed to be novel, non-obvious and useful. What isn't obvious about closing a metering valve?
The simply ridiculous software patents are legion and for pure fun check out 5443036 for the patented use of handheld laser pointer to exercise a cat.
Patent portfolios are being used to squeeze the little guy out of the game. It is precisely counter to their supposed purpose. What can IBM be doing to obtain over 5,000 patents each year?
This reform isn't going to feed the bulldog.
Bob K.| 9.20.11 @ 7:36PM
I you saw my post above I noted that there was in the last 50 years or so, along with an inflation of our money supply, also an inflation of the United States Bureaucracies. I would also include the very great inflation of the numbers of Lawyers in the United States during that period. This has also contributed to the new and different difficulties in doing business in this country.
In fact, if you think about it you will find the same inflation in our Education Industry and probably many other facets of our society and culture which we normally take for granted.
bluecollarbytes| 9.20.11 @ 10:40PM
How does a rear view camera make backing up any safer? Drivers who back up over people may continue to do so, to distracted by the monitor to notice the blind spots. Maybe they'll even pay no more attention to the monitor than they do their real-world vision. Maybe there will always be accidents , injuries and death because driving a moving vehicle is dangerous, although a controlled danger. It would be better to start teaching driving skills, again.
Jose| 9.21.11 @ 6:27AM
Add in all the state and local regulations and I cannot imagine the hassle of launching a start-up company. Seems like dealing with the government is more work than actually producing and selling products or services.
http://www.summer-products.com
http://www.besthandbagsshopping.com
Jose| 9.21.11 @ 6:29AM
Patent portfolios are being used to squeeze the little guy out of the game. It is precisely counter to their supposed purpose. What can IBM be doing to obtain over 5,000 patents each year?
http://www.wholesalehatsshop.com
http://www.winter-brands.com
Tom| 9.21.11 @ 6:44AM
"The fascist bargain goes something like this. The state says to the industrialist, “You may stay in business and own your factories. In the spirit of cooperation and unity, we will even guarantee you profits and a lack of serious competition. In exchange, we expect you to agree with — and help implement — our political agenda." -- "Liberal Fascism" by Jonah Goldberg