Chevy Illogic (Part 2)
Anyone wonder why cars are so expensive these days?
General Motors recently announced their plans to invest over a billion dollars in two Michigan plants to manufacture next-generation heavy-duty trucks.
Weren’t they planning to go fully electric by 2035? Why would they be investing heavily in the production of combustion-engine vehicles?
The answer is simple…
General Motors only profits from traditional internal combustion vehicles. Without them, automakers would struggle to generate any profits. This is the main reason the prices of cars have skyrocketed. General Motors must make up for losses in its EV unit by raising the prices of its IC automobiles.
Reflecting on the auto bailouts during the Obama administration, it’s notable how automakers were criticized for manufacturing cars in Mexico with U.S. taxpayer funds. Interestingly, they built smaller, barely profitable models like the Ford Fiesta there to mitigate losses.
The decision to manufacture non-profitable cars is influenced by government regulations and fleet standards. Previously, luxury car manufacturers would pay fines for not meeting fleet standards and include this cost in their pricing. Today, however, stricter regulations and the near impossibility of compliance with combustion engines have driven manufacturers towards producing electric vehicles. This shift results in less profitable vehicles for manufacturers and more expensive ones for consumers.
The Corporate Average Fuel Economy (CAFE) plays a significant role in this scenario. Designed to reduce greenhouse gas emissions and improve fuel efficiency in new vehicles, CAFE regulations inadvertently contribute to inflation within the auto industry. This situation underscores the need for policymakers to balance environmental considerations and economic implications.
Consider automaker Lucid’s forthcoming model priced at nearly $200,000 – a cost that doesn’t easily align with average family budgets. Even traditionally affordable options, like minivans, now come with surprising price tags, pushing the average cost of a new car in America over $40,000. A substantial portion of this increase is due to regulatory inflation.
Regulations reportedly cost consumers over $2 trillion a year, leading to questions about their real value. The contradictory stance of investing billions into next-generation diesel trucks while promising a full transition to electric by 2035 raises further doubts. While corporate executives might espouse ambitious goals to avoid regulatory backlash, a complete shift to electric vehicles by 2035 seems unlikely given the current landscape.
Balancing environmental sustainability and economic feasibility is paramount in the auto industry. Stricter regulations, while environmentally beneficial, have significant cost implications that we must thoughtfully address.
