Why We Had To Regulate The Auto Industry

July 1, 2011 - 3:49pm

By Jake Blumgart. Posted on July 1, 2011.

I recently came across a 1986 Ralph Nader op-ed extolling the virtues of automobile safety and reminding us why government action, in this instance, was so necessary.

The occasion for Nader’s opining was the 20th anniversary of the publication of Unsafe At Any Speed (1965), a searing depiction of an auto industry with little concern for the safety of their product.  LBJ signed The National Traffic and Motor Vehicle Safety Act into law a year after Nader’s book hit the shelves and a nw federal agency was created to address the myriad oversights of the American auto industry: The National Highway Traffic Safety Administration (NHTSA).

The Big Three—General Motors, Ford, and Chrysler—were horrified by this unprecedented incursion into their domain. “Many of the temporary standards are unreasonable, arbitrary and technically unfeasible,” Henry Ford II whined. “If we can’t meet them when they are published we’ll have to close down.” The Big Three, of course, did not shut down. Instead, after much kicking and screaming, “arbitrary” features like seatbelts, headrests, and turning signals became standard issue.

In this instance, “technology forcing” regulation was necessary because industry simply wasn’t doing anything about the safety issue on its own. As Nader notes in his op-ed, Detroit was in no rush to change in the mid-1960s.

“At the time my book came out, the domestic automobile industry was at a technological standstill. Annual styling changes - in chrome decoration and other trivial product differences - took precedence over investment in engineering safety, fuel efficiency and pollution control.”

The NHTSA and auto safety advocates forced the monopolistic, complacent and technologically moribund auto industry to pay attention to safety issues. Regulation, or the threat thereof, helped create a market for safer cars. As Paul Krugman writes in his essay “Supply, Demand, and English Food”:

“A free-market economy can get trapped for an extended period in a bad equilibrium in which good things are not demanded because they have never been supplied, and are not supplied because not enough people demand them.”

Krugman provides a near perfect description of the American auto industry’s relationship to safety devices, fuel efficiency, pollution control in the mid-20th century. Auto manufacturers had never offered these features, so their customers weren’t asking for them. (The problem was exacerbated by the fact that Detroit enjoyed a practical monopoly on their corner of the market.)

Industry does not always know what best. In fact, incumbant companies can become complacent and sluggish, particularly if they don't have to worry about real competition.  (Henry Ford II’s fretting over the regulation nicely illustrates the Big Three’s extraordinary myopia and lack of perception.) In short, the auto industry needed an outside force powerful enough to influence what was, at the time, one of the largest industries in the nation. And millions of lives have been saved as a result of the safety features Detroit adopted under Naderite and NHTSA pressure.


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