Published May 1, 2012, Los Angeles Daily Journal – 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. The automotive industry was transformed by Henry Ford 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% 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 (NHTSA), which has since then assumed full responsibility for vehicle safety. NHTSA has promulgating 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. And, 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 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. And, 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% chance of being passed, and this is a travesty in the making. There cannot be a more appropriate time to save our stake-hold in one of the most important trades, and enable our inventors to redefine the industry in ways we could never imagine.