H McKee Stewart Jr

Musings on Business, Finance, and Economcs.

Regulatory State Run Amok; Edition # 927,687,125,987,213

with one comment

In a now all to commonplace fit of hubris, the Obama Administration mandates fuel efficiency standards for over the road commercial trucks. This is just nuts, for a number of reasons.

As a point of disclosure, I’m against the government’s CAF E standards for cars. It’s a hidden tax on automobiles; it pushes manufacturers to make less safe vehicles, leading to increased deaths and injuries on the highway; forces the manufacture of cars that nobody really wants, and that the car companies can’t make profitable, simply so that our betters in government can congratulate themselves on knowing what’s best for America’s great unwashed.

People buy cars for a number of factors: room to transport their family. Reliability. Safety. Prestige. Cool gadgets. Performance. “Chick Magnetism”. Fuel efficiency / low operational costs are just one item on the list, which is what serves as justification to get the government in the game of deciding what kinds of cars  you can buy, because car buyers are so “irrational”.

Truckers – either owner operators or corporate fleet owners – tend to be a more hard headed lot. Sure, they have certain performance requirements related to the need to haul thousands of pounds of freight. They also have a need to buy trucks with a high degree of reliability and ease of repair (breakdowns are money out of their pocket), and are equally focused on fuel efficiency (diesel is money out of their pocket).

As a group, they are faced with extremely tight profit margins. They are constantly looking for ways to reduce costs. Consequently, the truck and engine manufacturers are equally focused on improving both reliability and fuel efficiency.  Improving fuel efficiency puts money in the pockets of their customer – the trucker – and a significant gain is going to provide a hard to duplicate competitive advantage for the truck maker.

Given that the commercial truck market has a tremendous incentive to improve efficiency, what can the Obama administration add, beyond grandstanding? After all, is regulation needed to get business owners to do what’s clearly in their best financial interest? And one that they are already pursuing?

Regulations have an additional side effect: formulated by bureaucrats, they tend to drive a one size fits all approach that will likely stifle innovation and increase compliance & paperwork costs.  Plus, bureaucratic jobs are saved or created.

It’s pretty safe to expect that:

1. No new jobs or investment will actually be driven by these regulations.

2. Commercial truck prices will increase. The increased costs will probably more than offset the expected fuel “savings” that the regulations mandate.

3. Truck safety will probably be compromised to meet the new standards. Possibly reliability as well. (One suspects that the phrase “reduced rolling resistance” can be translated as “less traction” or “longer stopping distances”, but I’m not an engineer, so this is open to debate).

4. Some truck makers will be forced out of business as a result of compliance costs.

But press releases will be issued about how the environment is being saved.

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Written by hmstewartjr

14 August 2011 at 8:27 PM

Posted in Uncategorized

One Response

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  1. […] Roulston Research Partner McKee Stewart wrote about the recent announcement by the Obama Administration for new fuel efficiency standards for medium and heavy trucks. This is the first time that there has been fuel efficiency standards set for heavy duty vehicles, which is part of a larger set of standards enacted by the government recently. In July, they announced an increase to the Corporate Average Fuel Economy (CAFÉ) standards that require passenger cars to get 55.4 mpg by 2025. McKee states that the commercial trucking industry has extremely tight profit margins and constantly is looking for ways to reduce costs. The industry doesn’t need regulations because it makes fiscal sense to move in this direction. However, McKee says the new regulations have the potential to stifle innovation and increase compliance and paper work costs. To read McKee’s full posting to see his opinion on how the industry will be affected by the new regulations please go to his website at https://hmstewartjr.wordpress.com/2011/08/14/regulatory-state-run-amok-edition-927687125987213/ […]


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