Normally a surge in the price of used equipment relative to new signals a robust order book. Not for truck manufacturers. A series of US and EU standards for diesel engine emissions has added 7 to 10 per cent so far to the cost of a typical heavy duty model while increasing fuel costs by nearly a quarter.
reports The pro-environmentalist Financial Times. Indeed, this morning we heard that Durable Goods Orders Miss Expectations By A Mile. “Transportation equipment,” reports the Census bureau, “also down two of the last three months, had the largest decrease, $2.9 billion or 5.2 percent to $52.3 billion.”
Not good news especially if we note President Obama’s emphasis on manufacturing and his goal of doubling US exports in five years. Such an initiative was designed to create (or save?) 2 million jobs and help rebalance the global economy. QE2 is designed to weaken the US dollar thereby making US exports more competitive. The problem: Legislative environmental mandates undermine the US ability to achieve this commendably goal:
Engineers at General Electric, which has developed technology to remove emissions more economically, reckon that the average efficiency of a heavy truck fell from eight to six miles per gallon in 2007 as a result of the new standards and has since crept back by around half a mile per gallon. The next set of regulations, which also are expected to add to prices, seeks to make engines more efficient by 2014. The end result will be a truck less efficient than one that could have been bought for less money in 2006.All of which means higher costs and lower volumes for manufacturers like Navistar. When new standards were adopted in 2007, its engine sales fell by 23 per cent year-on-year as buyers stocked up on older models before the changeover. The combination of more expensive trucks and the recession led 2009 sales to be some 42 per cent lower than in 2006.
Trucks are but one example of the price of an environmentalism unrestrained by cost considerations, the belief that innovation can be forced and lower growth in developed countries is beneficial. Inevitably, the working poor pay the highest price for elite folly and manufacturing has been the source of employment for the less educated. Hence, it is them that the environmentalist hurt the most. Thus, the unemployment rate of those without high school diploma 15.3%, for those with high school diploma 10.1% and for college graduates, 4.7%.
Luckily, a few environmentalists are having second thoughts and are recommending including a cost benefit analysis in environmental legislation. That is the message of Bjørn Lomborg’s book and documentary COOL IT. It is also the message of LEX:
Everything has costs, and this includes fighting pollution and waste. But regulations can be written in a way that at least tries to mitigates them. That has not been the case for the new emissions and efficiency standards. By gradually raising excise taxes on fuel and taxing polluting engines, for example, truckers would have an incentive to trade in older models for cleaner, more efficient ones. This would be cheaper, less disruptive and probably more effective than forcing manufacturers to make a product customers would prefer not to buy.
Let’s hope the new Congress includes such a policy in its upcoming reform agenda.