American competitiveness?

The New York Times has a story today outlining how the Bush Administration is going to exempt the biggest SUVs from new CAFE standards. CAFE, or corporate average fuel economy, is the means by which the government has traditionally regulated automobile fuel economy (and, incidentally, greenhouse gas emissions). For years the CAFE standards have exempted light trucks which, when the standards were initially created, were used primarily for commercial and industrial uses. In recent decades, though, this has obviously changed and the standards are finally being adjusted to confront that reality.

American manufacturers, of course, hate this regulation because it places some constraints on the size and capacity of the vehicles they make for regular sale. Given their current dependence on high-profit margin SUVs, the manufacturers are especially opposed to including these SUVs in the CAFE standards arguing that Americans won't buy their trucks anymore. On that point, I think they're wrong. Crackheads buy crack regardless of the quality or size of the rock they're buying. They might bitch and moan, but they still buy the rock. Americans and cars are the same way. You'll get a bunch of carping from gasoline-addicted suburbanites and republican "think"-tanks, but people will keep laying out the dough for whatever shiny behemoth Detroit shits out.

But American's buying habits and environmental affects aside, I think the article brings up an interesting point about the competitiveness of the American auto manufacturers. Consider the following two quotes:

"[D]omestic automakers are likely to see [the Bush plan] as a victory, since the new plan will decrease advantages that some foreign automakers, like Honda, have in the current system because they do not make the heaviest trucks and S.U.V.'s."

First, I have a complaint about the logic of this sentence. It says that Honda has an advantage under the current system because they don't make big SUVs. Actually, if the current system doesn't regulate big SUVs and only the American manufacturers make such vehicles, then it is the American manufacturers that have the advantage. At least some portion of their products go un-regulated while all foreign manufactured products are regulated. Regardless, the basic gist of the sentence is correct: American manufacturers are pleased that the Bush Administration is foregoing regulation of big SUVs because it ensures some slant in the playing field to their benefit. The question is, why is such a slant necessary? The answer is here:

"Automakers have had powerful incentives to produce such [large] vehicles because they are exempt from fuel regulations, have had rich profit margins, and many consumers can claim tax breaks for them. The administration had suggested including larger S.U.V.'s in fuel economy regulations in a first wave of proposals in December 2003, but domestic automakers objected that such a move would harm their fragile bottom lines."

There you have it, American car manufacturers are opposed to fuel regulations on large SUVs because they think they'll go bankrupt if such rules are put in place. Of course, I think that Americans will buy SUVs regardless of their fuel economy. So why will fuel economy rules on big SUVs hurt American manufacturers? Because they can't build small SUVs that Americans will buy or, at a minimum, buy in sufficiently large numbers to keep them solvent. That's got to be the reason. Our domestic manufacturers rely on uneven regulations to give them an advantage in a market in which they otherwise can't compete.

Suppose we stopped regulating fuel economy altogether. What then? I guess the Big Three (or is that two?) would build nothing but giant gas guzzlers and hope that Americans keep on buying them. Would that be a prudent decision? The article suggests not. As gas prices have gone up, manufacturers have had to begin planning for smaller SUVs. The foreign manufacturers? They've already got 'em. They call this competition?