Debunking auto industry myths

NEW YORK (Fortune) -- I hesitate to pick a fight with a two-time Pulitzer Prize-winner like New York Times columnist Thomas Friedman. On the critical issue of developing a national energy policy to lessen our consumption of imported oil, he's been early, smart, and right.

But Friedman whiffed in his Times column yesterday, called "Et Tu, Toyota," by hauling out one of the hoariest of urban myths: That forcing higher fuel economy standards on American car buyers is what's needed to encourage more energy-efficient vehicles and make Detroit more competitive with its import competitors.

That's wrong...and wrong. Forcing people to buy more efficient cars by ordering car companies to make them is like forcing people to lose weight by banning food companies from selling Big Macs and pizzas. The reason Americans consume so much gasoline is that they like their big pickup trucks, SUVs, and V-8 engines. The reason the automakers make them is because people want to buy them.

Friedman's second argument, that "Detroit's failure to sell more energy-efficient vehicles has clearly contributed to its brush with bankruptcy" is baloney, too. Actually the opposite is true. Detroit is forced to sell small cars at a loss because the government already mandates stringent full economy standards. The automakers make a lot more money on big, gas-guzzling cars whose sales are unrestricted.

Some of the points that Friedman makes to buttress his arguments are misleading. He praises Japan and Europe for auto fleets that have much better mileage standards than the U.S. without mentioning the fact that driving conditions are different - try steering a Lincoln Navigator through a medieval village in Italy - and gasoline taxes in those countries are so high that people are willing to squeeze into small cars. Start charging American drivers $8 a gallon and they'll switch to small cars in a New York minute.

Friedman also perpetuates the far-fetched notion that Toyota (Charts) has a responsibility to lead the charge for higher fuel economy standards. Toyota is successful precisely because it lets the market dictate its product offerings. Since American buyers want big trucks, Toyota makes them. It has left its Japanese competitor Honda in the dust precisely because Honda refuses to make a big truck or a V-8.

American manufacturers DO build fuel-efficient cars but Americans don't buy them. Ford (Charts, Fortune 500) is currently offering cut-rate financing on the 2008 Escape Hybrid, while GM (Charts, Fortune 500) is subsidizing the smallest car in its lineup, the Chevy Aveo. And GM can brag all it wants about having more models - 30 of them - than any other manufacturer that get more than 30 miles per gallon on the highway, but it gets precious little credit for it in the marketplace.

If you want to really slow the progress toward more fuel-efficient vehicles, force the industry to make more of them and lose money in the process. As Toyota spokesman Irv Miller points out, "You can't bankrupt the industry if you want it to invest in our environmental future."

It has been argued here before that if the government wants to be serious about improving fuel economy, all it has to do is boost the tax on gasoline. The revenue generated could be rebated to lower-income drivers who are truly disadvantaged or invested in mass transit. The auto companies aren't going to argue for such a tax because it would give them a black eye with consumers. And the government won't do it either, because of its anti-tax bias.

But Friedman, using his column as a bully pulpit, could argue for such a tax with impunity. And it would be a whole lot more effective than perpetuating the old myth about the ignorant luddites in Detroit who are withholding the small, fuel-sipping cars that Americans really want to buy.