In my local paper today, the front-page online carried several articles, two of which seemed to stand in glaring contrast to one another. The first suggests that Detroit-based automaker, Ford, much like Homer Simpson in “Behind the Laughter,” is “spending money like a teenage Arab,” and is on pace to burn through its $24B in cash by the end of FY2007. Buried towards the bottom,which is usually where the Freep sinks their AP feed, is an article bearing Barak Obama’s picture, chastising our “dependence on foreign oil” as the nation’s “Achilles’ heel,” and urging higher fuel economy standards for all vehicles.

If Government really wants to do something about the ailing domestic auto industry, and I’m not sure that they do, a good place to start would be eliminating fuel economy restrictions, and other superfluous guidelines that hamstring the companies, most of whose profit comes from large trucks and SUVs. Simply put, increasing the cost of production, and concomitantly the MSRP, is no way to offset rising fuel costs. Because…

Automobiles and Gasoline are complimentary goods. In fact, one could make the case that they are perfectly complementary. When shopping for a vehicle, most wise consumers will account for the monthly payment for the vehicle, its insurance premium, and the operating costs – including gasoline, which is by far the greatest expense. For instance, the Ford Escape hybrid was selling at a $3,000 premium over the regular gas-guzzling version. Even amortized at 0% over 6 years, it is still economically more sound to purchase the regular ol’ gas guzzler, unless you’re saving more than $500 a year in gas. And you’re probably not. Here is where I was going to do some math and make myself look smart, but it’s late, and I’m tired. So suffice it to say, that unless the increased cost of owning or leasing a car is more than offset by the marginal increase in fuel efficiency, it is in nobody’s best interest, and positively detrimental to the plight of the Big 3, to pursue such policies.