July 20, 2016

Thoughtless Regulations Jeopardize Car Buyers

The car industry is one of the most regulated parts of our economy, especially when it comes to the design and performance of the final product. For this reason, the car industry is also an excellent place to study the negative effects of government regulations. 

At the forefront of government incursions into the manufacturing, sale and consumption of motor vehicles is the political desire to reduce emissions of, primarily, carbon dioxide. To bring the industry into compliance with political emissions demands, the federal government imposes gradually tighter mileage standards. In response, car manufacturers have to put more and more of their resources toward finding new ways to meet these standards. 

Since the miles-per-gallon standards are strictly political and do not take into consideration other objectives with car manufacturing, one should not be surprised to find that car manufacturers are ready to cut corners to meet those standards. We have all heard about Volkswagen's systematic cheating with mileage numbers for its turbo diesel engines; today we can report three more scandals that belong in the line behind the VW scandal.

First out is another diesel engine story, one that will not affect U.S. car buyers:

French automaker PSA admits some of its official fuel-economy figures are more than 30% overly optimistic. In a move that should shame other manufacturers, PSA has “come clean” over real-world fuel figures it recorded during tests conducted with two non-governmental organizations, and audited by Bureau Veritas. The test schedule involved 30 of the manufacturer’s core products under its three brands, Peugeot, Citroen and DS. The worst-performing vehicle was the diesel Citroen C3 BlueHDi 75 S&S 1.6L on 15-in. low-rolling-resistance tires, which recorded a true fuel economy of 47.9 mpg (4.9 L/100 km) against the official claim of 78.3 mpg (3.0 L/100 km). The best performer was the Peugeot 2008 1.2L PureTech 82 on 16-in. low-rolling-resistance tires that returned a real-world 36.7 mpg (6.4 L/100 km) against the manufacturer’s claimed 47.9 mpg (4.9 L/100 km). The tests were on a mix of urban (15.5 miles [25 km]), rural (24.2 miles [39 km]) and interstate (19.2 miles [31 km]) public roads under real-life driving conditions. The vehicles carried passengers and luggage loads, and air-conditioning systems were used during testing. 
The European government-imposed miles-per-gallon test is not as strict as its U.S. counterpart, but it is rigorous enough to be cheated with. The reason, of course, why the French auto maker falsely reports excellent fuel consumption numbers is that government imposes standards that are practically unattainable. The pursuit of ever better fuel economy becomes such an overarching goal that car manufacturers make it the very prime goal of the design of new vehicles - and they still cannot accomplish what the government demands from them. 

Some auto makers try to respond by developing all-electric automobiles. One of the more popular in recent years is the Nissan Leaf, of which the Japanese manufacturer has been able to move 25-30,000 per year in the U.S. market. However, much of that volume is due to government subsidies of the type that picks winners and losers (instead of letting the market do so). Furthermore, since car buyers have numerous reasons to be skeptical of electric cars Nissan has moved its respectable volume almost entirely based on generous lease contracts.

There is one big problem with lease contracts: they expire within a couple of years, and when they expire the dealerships are flooded with large volumes of "preowned" vehicles of the same model, with roughly the same mileage. 

Normally, with popular traditional vehicles such as the Camry or the Accord the dealers can load off many of pre-leased vehicles onto the used-car auction market. They are popular and command respectable resale values. 

As the first mass-produced electric vehicle, the Nissan Leaf was a pioneer. To overcome consumer qualms about the new technology, Nissan offered attractive lease deals and moved a healthy volume. Now that those Leafs are coming off lease, however, the market for pre-owned EVs is weak. It is an issue likely to grow as more manufacturers begin to offer more battery-powered models. “The values on the used-car market now that (Leafs) are coming back with lease returns aren’t super high and I’m not finding a lot of repeat customers,” Joe Sage, president of Sage Auto Group, tells WardsAutoThe group, which includes three Nissan dealerships, is based in the San Fernando Valley area of Los Angeles. California has been the driving force behind growing EV sales, accounting for more than half of all plug-in electrics sold in the U.S. in 2015. But even in California consumers worry about EV technology, specifically battery range. 
If you are lucky you can get 75 miles out of the Leaf's battery pack. That is barely a daily commute in Los Angeles - not to mention cities like Boston, New York, Detroit, Denver, Minneapolis and others in the Snow Belt. As soon as there is snow on the ground the Leaf performs dramatically worse, due to a combination of weight-saving, resistance-reducing engineering tricks. 

It is perfectly reasonable that commuters with children to pick up, groceries to buy and dentists' appointments to keep are not interested in a car that barely gets them from home to work and back. But even with longer ranges the electric vehicles are unable to compete with gasoline and diesel vehicles. Their batteries wear down, shortening the range as the vehicle ages; replacement battery packages are not cheap. 

Furthermore, as mentioned, their performance on anything but Southern California asphalt is questionable at best. If you have not had the privilege of watching a Leaf get stuck in snow that your garden-variety Altima rolls through with ease, then I feel for you.

Not all auto makers invest heavily in all-electric vehicles. Ford, for example, has decided to pursue a different route and build an all-aluminum pick up truck. The goal, again, is to save weight and squeeze a few more miles out of every gallon of gasoline. While technically Ford has succeeded and improved fuel economy - though their all-aluminum trucks still do not reach the mileage of GM's  Silverado and Sierra twins - their achievements have come at a rather heavy price for their owners:

Reports flooded the internet this morning that a next generation Ford F Series Super Duty pickup prototype test truck had caught fire and literally burned to the ground – and that the result of the towering inferno was melting action that suggest that the Super Duty will use similar aluminum panels to those used on the 2015 F150.
A long time ago I did a stint as an airport fireman. One of the things we learned and practiced heavily was how to breach the hull of a burning airplane to get passengers out as quickly as possible. We always had to direct the first fire truck to spread foam-water mix over the airplane body to cool it down, before we could cut through the hull or open an escape exit any other way. The cooling had to start within two minutes of the plane catching fire - our deployment time from alarm to beginning of the rescue operation was 90 seconds on airport ground - or else the temperature inside the plane would be so high that passengers (beware: graphic expression) could be cooked alive.

Airplanes are vulnerable to the heat from fire for exactly the same reasons that Ford F-150s burn to the ground. Unlike steel (which cars have historically been built from) which repels heat, aluminum is a conductor of heat. Furthermore, it is rapidly disfigured under intense heat, preventing doors from opening properly. 

In other words, to save a few pounds and score a few more miles per gallon Ford has turned its incredibly popular pick-up truck into a vicious death trap.

Dishonest mileage reporting, worthless used cars and aluminum death traps are just three of the unintended - but predictable - consequences of heavy-handed government regulations. It is time to change course, let consumers lead the way and demand cars, trucks and SUVs that meet their needs. If consumers are environmentally aware they will buy cars with better fuel economy, but without having to pay the price of lies, lost money and driving around in a proverbial death trap.

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