LOS ANGELES
www.dailyjournal.com
TUESDAY, MAY 1, 2012
An industry lost: high entry barriers strangle auto industry
By Jonathan Michaels
If anything, America’s greatest
asset is its ability to innovate. Our
nation’s fabric is woven from unconventional thinking and the courage to dream. From this, we have
introduced to the world everything
from motion pictures to commercial aviation to hip-hop; and often
times before the dust settles we are
at it again, rethinking the industry
we just created. Alexander Graham
Bell spurred an industry with the invention of the telephone, and some
100 years later, Steven Jobs took the
industry into the fourth dimension
with the introduction of the iPhone.
Our inventors have made us yearn
for products we didn’t even know
we wanted, keeping our economy at
the forefront of the race for supremacy. Henry Ford transformed the
automotive industry from a small
town cottage industry into one of
the most influential trades in the
world, with the introduction of the
assembly line and the Model T. And
what Ford started, General Motors
and Chrysler finished, building empires of unimaginable significance.
In their day, the Big Three controlled 85 percent of the world’s
auto production. Yet, decades of
complacency have toppled the once
mighty, and well-intended regulatory measures have precluded new
entrants from achieving success. It
is the latter issue that has proven
troublesome, as it has chilled innovation and driven away the entrepreneurial spirit.
There once was a time when automotive safety was given little consideration. Whether driven by cost
or genuine concern of market rejection, automakers for years resisted
even the most basic precautions.
Yet this all changed in the 1960s
when the National Academies of
Sciences released a watershed report that highlighted the danger of
the automobile and the industry’s
reluctance for safety measures. The
report noted that in 1965 auto accidents killed 107,000 Americans
and permanently disabled another
400,000 — calling the problem an
“epidemic of modern society” that
is the nation’s most important environmental health problem.
Congress’ response to what had
become a national debate was to
enact the 1966 Highway Safety Act
and to create the Department of
Transportation. At the time of signing the law, President Lyndon B.
Johnston is quoted as saying, “[W]e
have tolerated a raging epidemic of
highway death ... which has killed
more of our youth than all other diseases combined. Through the Highway Safety Act, we are going to find
out more about highway disease —
and we aim to cure it.”
The 1960s legislation also led to
the creation of the National Highway Traffic and Safety Administration, which has since then assumed
full responsibility for vehicle safety.
NHTSA has promulgated numerous
Federal Motor Vehicle Safety Standards, which regulate items you
would expect, such as child seats
and airbags, to the truly remote,
such as windshield glazing and
pneumatic tires. While the first safety standard was the requirement for
seat belts, much has changed over
the last 40 years. Today, the Federal
Motor Vehicle Safety Standards are
a labyrinth of regulations that are
deep, complex and unforgiving.
To meet these stringent requirements, automakers are required to
put their cars through a battery of
Jonathan Michaels is the founding member of Michaels Law
Group, which specializes in representing clients in the automotive
industry. He can be reached at [email protected]
or (949) 581-6900.
Associated Press
Tesla product architect and CEO Elon
Musk speaks at the North American
International Auto Show in Detroit,
2010
front, side and rear crash tests — at
costs that run into the hundreds of
millions. On average, U.S. automakers crash 60 to 100 cars before
they are certified for consumer duty,
an endeavor that is both costly and
time consuming. Given this, it is no
surprise that carmakers typically
spend over a billion dollars and several years bringing a car to market,
with no guarantee of consumer acceptance.
While all of this is good for consumer safety, it is troubling for the
entrepreneur trying to enter the
market. Over the past several years,
countless U.S. companies have tried
to break into the industry, with little
success. Fisker and Tesla are the
newest to attempt the journey, and
they too are showing signs of stress.
Fisker’s financial troubles have
been the subject of national attention, and Tesla is one of the most
frequently shorted stocks on the
exchange. It is an open question of
whether they will make the cut, but
the smart money is against them.
The last domestic car company to
enter the U.S. market and achieve
sustainability was Chrysler, who
undertook the challenge in 1925.
Given the nearly insurmountable
costs associated with bringing a car
to market, it is a serious question of
whether any ground-up company
can accomplish the task. This is a
fact that should concern us all, as
we are on the cusp of losing an industry we helped to create.
A solution to the problem has
been posed, and it is one worth
considerable note. In October
2011, Congressman John Campbell introduced H.R. 3274, known
as the “Low Volume Motor Vehicle
Manufacturer’s Act,” which would
exempt vehicle manufacturers from
NHTSA compliance while they
were in their ramp-up phases. Limited to manufacturers who produce
less than 1,000 vehicles per year,
the act would enable entrepreneurial companies to achieve a level of
success before having to encounter
the type of capital outlay that is associated with full NHTSA compliance.
While the bill’s enactment would
be mean that certain vehicles
would be on the road that have not
achieved NHTSA compliance, is
this necessarily an intolerable result? Many Americans drive cars
that were built years ago, and long
before crumple zones and airbags
had even been considered. On balance, are we not willing to tolerate
a low volume manufacturer’s car on
the road, in exchange for a heightened likelihood of the manufacturer’s success?
Congress appears to think not.
The bill is currently being reviewed
by the House Committee on Energy
and Commerce, but its prognosis
looks dim. According to Civic Impulse, LLC, the entity that tracks
activities in the U.S. Congress, the
bill has a 3 percent chance of being passed, and this is a travesty in
the making. There cannot be a more
appropriate time to save our stakehold in one of the most important
trades, and enable our inventors to
redefine the industry in ways we
could never imagine.
Reprinted for web use with permission from the Daily Journal. ©2012 Daily Journal Corporation. All rights reserved. Reprinted by Scoop ReprintSource 1-800-767-3263