Unsafe at Any Speed?

__"The Regulation of Fuel Economy and the Demand for ‘Light Trucks’" by Paul E. Godek, in Journal of Law and Economics (Oct. 1997), Univ. of Chicago Law School, 1111 E. 60th St., Chicago, Ill. 60637.__

Amid great fanfare, Congress passed legislation in 1978 supposedly aimed at compelling Detroit to save energy by producing more small, fuel-efficient cars. In reality, says Godek, of Economists Incorporated, a Washington, D.C.-based consulting firm, the much-ballyhooed Corporate Average Fuel Economy Standard (CAFE) was "an attempt to subsidize domestic car production disguised as a conservation policy." Much of its attempt to cut gas consumption backfired, even as it compromised motorists’ safety and sparked a boom in minivans, sport utility vehicles, and other light trucks.

CAFE set an average miles-per-gallon (mpg) minimum that a domestic manufacturer’s new car fleet had to meet every year—18 mpg in 1978 and 27.5 today. Failure to meet the standard meant fines. The regulation gave U.S. automakers, already facing stiff competition from fuelefficient imports, an incentive to turn out fewer large cars relative to small cars. They were barred, moreover, from importing foreign-made vehicles to meet the standard. That meant that they had to keep open small-car production lines they might otherwise have shut down—and keep employing workers they might have laid off.

CAFE did encourage Detroit to build lighter cars, Godek says, but the resulting fuel economy came at the cost of reduced safety. A study of 1989 vehicles showed that CAFE cut their average weight by some 500 pounds, which "is associated with a 1427 percent increase in occupant fatality risk." Big-car production dropped from nearly 70 percent of all vehicles in 1980 to less than 50 percent in 1995. But the proportion of small cars, after a modest initial increase, actually fell. It is now just above 10 percent. What increased instead? Production of light trucks.

Congress had left a loophole. The CAFE standard for light trucks was much less stringent than the one for cars, rising from 17.5 mpg in 1982 to only 20.6 mpg today. Why? Godek thinks that it is no coincidence that Detroit faced relatively little foreign competition in this category. If Congress was more interested in saving jobs than fuel, as Godek believes, there would be no point in clamping down on light trucks.

In any event, consumers who were worried about auto safety knew what to do. From under 20 percent of all passenger vehicles in 1980, light trucks’ share grew to about 40 percent in 1995. Godek calculates that the regulation was responsible for about half of that increase. Moreover, Godek says, as gas prices (adjusted for inflation) declined through the 1980s, consumers opted for heavier light trucks, ones that weighed about the same as pre-CAFE passenger cars. By 1995, he calculates, additional light truck sales encouraged by CAFE added about 300 pounds to the average weight of motor vehicles, thus erasing about 75 percent of the reduction CAFE would have wrought.

If energy conservation had been its chief concern, Godek observes, Congress could have achieved it more effectively with a stiffer tax on gas. Instead, Congress wanted to save jobs—and it sacrificed some fuel economy and some auto safety to do it.