What Regulations Affect the Automotive Sector?

Government regulation in the automotive industry directly affects the way cars look, how their components are designed, the safety features that are included, and the overall performance of any given vehicle. As a result, government regulation also has a significant effect on the automotive business by generally increasing production costs while also placing limitations on how cars are sold and marketed. Automotive regulations are designed to benefit the consumer and protect the environment, and automakers can face stiff fines and other penalties if they are not followed.

Key Takeaways

• The automotive industry, like many major industries in the United States, is subject to a series of rules and regulations imposed by the government.
• Regulations influence the way automobiles are designed, how their parts are manufactured, and what safety features are included.
• In more recent years, government regulations have sought to shape what level of fuel efficiency automobiles must achieve.
• These regulations tend to boost production costs and limit the way autos are sold and advertised.

How Government Regulation Affects How Cars Look

In the 1950s, a consumer could easily differentiate one car from another by its make and model. Car designs varied wildly from year to year, and the creativity of these designs played a part in their sales appeal. However, these designs also differed greatly from one another in terms of safety.

For example, the 1953 Mercury Monterey had a rigid steering column and sharp levers on the heating system that could potentially impale a driver on impact. As the government stepped in and started adding more modern safety requirements, such as seatbelts, airbags, and crumple zones, many of the car designs started looking the same so that automotive companies could more easily comply with these requirements. Every safety feature has design limitations, takes up a certain amount of space, and has to fit in a specific area of the car. This limits a car designer’s options when creating concepts for new vehicles.

Fuel Efficiency Requirements

Lawmakers also made fuel efficiency a higher priority in recent years. The Corporate Average Fuel Economy (CAFE) is a set of national standards for automotive fuel efficiency that went into effect after the Arab oil embargo in the early 1970s.

The standards were upgraded by the Obama Administration in 2012 to increase fuel efficiency goals gradually each year, ultimately reaching 54.5 miles per gallon by 2025. These were rolled back to 40 mpg by President Trump in 2020, and Biden has since rolled them forward again two years later to 49 mpg. Still, the development and implementation of new technologies to reach these goals require substantial investment from automotive companies to ensure new car models are both fuel-efficient and safe. 

Emissions Laws Increase Cost

Emissions laws also affect a car maker’s bottom line. Catalytic converters and other devices designed to reduce a car’s emissions cost money to develop, test and mass-produce. While this expense is typically passed on to the consumer, environmental regulations still significantly affect the day-to-day operations of the automotive sector.

Government regulations are not restricted to the United States. Most automotive companies make vehicles that ship around the globe. It is in their best interests to have standardized vehicles that do not require modification before being sent to a foreign market. As a result, many cars are designed to meet not only U.S. regulations, but the regulations of other countries as well. This adds further expense and hampers the design process because many different criteria need to be met for a vehicle to be street-legal in different parts of the world.

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