Wall Street Journal Off-Base on CAFE Standards

I normally think the Wall Street Journal is spot-on with its Opinion pieces but I have to take issue with this part.

The new U.S. fleet will almost certainly be made up of hybrids and electric cars. This comports with the explicit intention of the President and his environmental partners to back out fossil fuels. One may ask: Once Detroit is forced to build these cars, will free Americans want to buy them, at any price?

Unless we outlaw the bigger cars that recent sales figures have shown Americans prefer any time gas prices fall below $4 per gallon, Detroit will need help marketing these small vehicles. As GM's Bob Lutz put it not long ago, "Very few people will want to change what has been their 'nationality given' right to drive big and bigger if the price of gas is $1.50 or $2 or even $2.50. Those prices will put the CAFE-mandated manufacturers at war with their customers."

The problem is that these new CAFE standards will effectively outlaw bigger cars. It doesn't matter what the customer wants because this one of those "you can have it in any color as long as it is black" type deals. The customer either buys a new hybrid at an increased markup (call it an R&D recapture fee) or they drive an old gas guzzler.

You will see most car companies rush to meet these standards so that they can recoup the R&D costs as fast as they can. So you might see Toyota coming out with an all Hybrid fleet well before 2016. That means you might never see a Hummer or a Ford Crown Victoria that is not held together with electrical tape and Bondo past 2012.

It doesn't matter what gas prices are in 2016 because the consumer has the choice between a 5-10 year old gas guzzler or a brand new Hybrid. I think the highways of 2012-2016 are going to be all Hybrids with tiny little Eurocars and 10 year old SUVs and Trucks thrown in.

I think many Americans will stick with their older, bigger, cars at first. But I would be willing to bet that Obama will change the spare parts law from 10 years after a car is discontinued to only 3-5 years to force people to "embrace change."

So that means that a customer still driving their 2009 Ford F150 Supercab will have the choice between buying a new Ford F150 Hybrid or having to custom make (or find on the Ebay) their replacement parts. I think a lucrative business in the future will be hoarding or custom making car parts for gas guzzlers. That means it might be a very good time to go long Autozone (AZO) as a buy-and-hold type stock for the next decade.