Small, fuel-efficient cars saved Americans during the oil crisis. Honda Civic got 40 MPG when land yachts got 13.5. By 1979, Honda sales in the U.S. had increased tenfold.
What Changed
Regulations created perverse incentives. The 1964 chicken tax imposed a 25% tariff on light trucks, protecting Detroit. Cafe standards had loopholes: bigger vehicles faced lower MPG requirements. Reagan capped Japanese imports, pushing them into luxury. Detroit exploited the truck loophole, building SUVs on truck frames to dodge fuel rules while charging premium prices.
Where it Landed
Small cars have vanished. Only one vehicle under $20K exists today (Nissan Versa). Average car price: $46,000. Ford, Chrysler, and GM killed all sedans except a few. Detroit makes 90% of profits from trucks and SUVs.
The Principles
1.
Regulations shape markets more than demand. Loopholes in cafe standards and the chicken tax made SUVs massively more profitable than sedans for 40 years.
2.
Protectionism breeds fragility. Shielding Detroit from competition left them unable to compete in sedans, collapsing in every crisis from the '80s to 2008.
3.
Follow the profit per unit. $11K profit on an Expedition vs. $2K on a sedan — automakers will always kill the low-margin product.
Builder's Takeaway
If you're in a regulated industry, watch for:
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Loopholes that make one product 5x more profitable than another
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Tariffs or caps that eliminate competition and breed complacency
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Incentive misalignment: what regulators want vs. what companies will actually do
