The New Yorker
The Financial Page
Fuel for Thought
by James Surowiecki July 23, 2007

In the auto industry, there’s one thing you can always count on: if a new environmental or safety rule is proposed, executives will prophesy disaster. In the nineteen-twenties, Alfred Sloan, the president of General Motors, insisted that the company could not make windshields with safety glass because doing so would harm the bottom line. In the fifties, auto executives told Congress that making seat belts compulsory would slash industry profits. When air bags came along, Lee Iacocca told Richard Nixon that “safety has really killed all our business.” A few years later, when Congress was thinking about requiring fuel-economy standards, auto executives warned that instituting such standards would create “massive financial and unemployment problems.” And now, with Congress debating a bill to raise fuel-economy standards, for the first time in almost twenty years, the Chicken Littles are squawking again, forecasting doom for Detroit and asserting that making higher-mileage vehicles is technologically unfeasible and economically suicidal.

Of course, much of this is simply stonewalling by executives determined to keep meddlesome politicians out of their business. But sometimes the industry’s fears have been founded on real market research. In the case of safety glass, G.M. believed that consumers weren’t prepared to pay more for cars with safety glass, so Sloan worried that it would be hard to recoup the cost of installing it. Similarly, when, in the mid-nineteen-seventies, G.M. offered front-seat air bags as an option on Cadillacs, Buicks, and Oldsmobiles, they didn’t sell. Fuel-economy standards present the same difficulty: although there are plenty of affordable models that get good gas mileage, over the past two decades some of the most powerful and least fuel-efficient vehicles on the market—S.U.V.s and pickup trucks—have also been among the best-selling. Thirty years ago, so-called “light trucks” accounted for about a fifth of all auto sales. Today, even with a recent slowdown, they account for more than half.

ROCHESTER, Mich., July 11 - John W. Snow, the chairman of the private equity firm that is buying Chrysler, said Wednesday that a Senate bill to significantly raise fuel economy standards could devastate the American auto industry.

Mr. Snow said he was optimistic, though, that lawmakers would ultimately agree on a less stringent way to reduce dependence on imported oil. He said his company, Cerberus Capital Management, would fight the Senate measure because it intended to own Chrysler long term. Chrysler lost $1.5 billion last year and is cutting 13,000 jobs in efforts to reverse a long decline in its share of the United States vehicle market.

"We're committed to Chrysler; we're committed to making it an enormous success," he told a Detroit Economic Club audience here. He also said that Cerberus had no plans to sell Chrysler or to take it public after making it profitable again.