Tuesday, May 19, 2009

Making Sense of a Swift and Severe World: What do the new CAFE standards mean for Innovation and Capitalism?

On Tuesday May 19, 2009 President Barack Obama proposed the highest auto fuel efficiency standards ever attempted in the United States. At the height of what might be capitalisms fall from grace and realignment with social needs, one of the worlds premier leaders steps up and proposes a new direction in our relationship with energy. Some of the far reaching goals of President Obama’s proposal include:

- An updated Corporate Average Fuel Economy (CAFE) standard for all new automobiles beginning in model year 2012.

- By 2016 the fleet average requirement would be 35.5 miles per gallon, and increase in fuel economy by 8 mpg from the current CAFE standard of 27.5 mpg for cars and 24 mpg for light trucks.

- The 35.5 mpg standard would be achieved four years earlier than under the current CAFE law, which requires a 35 mpg standard in model year 2020.

- The projected oil savings of this program over the life of this program would be 1.8 billion barrels of oil; and tailpipe emissions would fall by more than 30 percent, according to White House officials.

I'm going to be the naive one, and should know better that to touch this topic; but what do you all think...is industry and government generally in balance? I understand the desire for single national CAFE standards, but wouldn't competitive companies have sought cleaner fuels and autos regardless? In his book
World Inc. author Bruce Piasecki writes about social response product development efforts of Toyota in a chapter he titles,Toyota and the Search for the Superior Car”. In reading the chapter what is surprising is that Toyota spent a decade or more in R&D and beta testing of the Prius and the hybrid-electric power train as they foresaw in many ways, the announcement by President Barack Obama on the 19th of May 2009. They could not predict the exact date, the exact time, or even who the US leader would be to make such a sweeping change in CAFE standards for a new century. But Toyota had the foresight to know that such swift and severe change would arrive and it would be best to position their products and core customers for this day. And now that the day for upgrading auto efficiency standards into the 21st Century has arrive? Toyota again is prepared to address and meet this change in CAFE with its existing product family and core technologies already in mass production. It should not be surprising to think that Toyota is already thinking one or two administrations into the future on social policy changes and the impact of innovation.

Does the policy push the innovation outcome or vice-versa? It seems like a less exciting world if we all wait for the policy mechanisms to be put in place to move technology toward consumer wants/desires. And to me CAFE has been a veil placed between industry and consumers that does not allow for innovation to move at a pace it could move. Perhaps we see this barrier in the utility, healthcare and consumer products industries as well?

Would Thomas Edison have been happy with the pace of innovation on lighting to get where we are with the CFL?

I understand the machinery of industry and government needing to have coalitions that can move markets in a balanced path forward, for competitive reasons. But the pace of policy should not dictate the adoption of innovation from my personal perspective, particularly if the innovation is for the great good of a company or society at large.

Mark C. Coleman
Senior Associate & World Inc. Case Leader, AHC Group, Inc.

Mark@ahcgroup.com

Want to get real about the future of energy, natural resources and capitalism, go to
www.ahcgroup.com and www.worldincbook.com to learn more on how leading companies are reinventing the future of business through social response product development and social response capitalism.

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