WSJ Column: Higher gas taxes better strategy than CAFE to save GM
Chevy Cruze - Click above for high-res image gallery
Ford Executive Chairman Bill Ford and AutoNation CEO Mike Jackson were just two voices that spoke out in favor of a higher gas tax earlier this year. While we took the Cato Institute's Alan Reynolds to task for muddying the waters of the "Toyota-licensed hybrid Fusion", there's reason to look deeper at his argument (published in The Wall Street Journal) which maintains that a higher gas tax isn't just a good way to encourage sensible car purchases, it also stands to be helpful in saving troubled domestic automakers like General Motors. Reynolds writes:
The federal fuel tax is highest on the most efficient fuel (diesel) and below zero on the least efficient fuel (ethanol). Cars get about 30% better mileage on diesel than on gasoline, and cars running mainly on gasoline get about 30% better mileage than they would using 85% ethanol.Since GM, already on the government dole, sells (proportionally) so many large vehicles, it will need to sell more smaller or diesel-powered vehicles to offset its truck fleet and to meet upcoming CAFE standards. Reynolds doesn't think CAFE is a good idea, and claims there's a better way to make sure GM survives. Reynolds says that a higher gas tax would allow the Detroit automaker to keep building the cars it builds best ("midsize and large sedans, sports cars, pickup trucks and SUVs"). Only by upping the gas tax and totally scrapping CAFE, Reynolds says, will GM not be forced to take even more money to survive – and to pay the CAFE fines it's sure to acquire. Doing so would also allow The General to not waste "more taxpayer money on 'retooling' to produce unwanted and unprofitable subcompacts and electric cars."
To stop distorting consumer choices, simply apply the same 24-cent-a-gallon federal tax to gasoline and ethanol as we do to diesel. This would add funds to the depleted federal highway trust. More importantly, it would remove an irrational tax penalty on buying diesel-powered cars -- arguably the most cost-effective way to improve mileage without reducing car size or performance.
Gallery: Paris 2008: Chevrolet Cruze
[Source: Wall Street Journal]
Reader Comments (Page 1 of 3)
win39 1:07PM (7/06/2009)
False choice here and a little dishonest politics to boot. You can have CAFE standards and a tax on gasoline. The tax on gasoline should help GM to meet CAFE standards, but if you consider that GM is in trouble because it failed to provide cars to the market place that people wanted there is no reason to think that penalties are unneeded.
Of course Cato Institute is an ultra right wing political organization and ordinarily would be against any form of taxation, unless it would be a highly unpopular tax levied by a Democratic administration that would earn them a political advantage. Their normal position would be to lift the tax on diesel. A new tax on gasoline during a recession and record high employment would be greeted with howls of glee by every Cato Institute talking head on television and by every taxpayer subsidized right wing pulpit in America.
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Snowdog 1:17PM (7/06/2009)
That crossed my mind too as I was wondering why a right wing "think tank" is calling for higher gas taxes.
win39 1:44PM (7/06/2009)
If you go to fueleconomy.gov and compare a Honda Civic and VW Jetta diesel, both light weight 140 HP cars the diesel has a fuel economy advantage, but their annual barrels of oil usage are almost identical due to greater efficiencies in producing a gallon of gasoline compared to diesel. So if you want to wrap dependence on foreign oil into the mix there is no advantage to diesel and probably it makes no sense to do anything different in the taxation between the two fuels.
So Reynolds idea that would just allow GM to continue to build large cars and trucks, but with diesel engines really does not help extricate ourselves from the middle east. It allows GM to continue to build and push high profit large vehicles and give half hearted attention to a line up that faces the reality the current world. Wouldn't it be interesting if GM failed and Chrysler/FIAT became the new number two behind Ford all because they were unwilling to change their mindset?
locoyocal 1:59PM (7/06/2009)
I'm guessing they are funded by Construction Conglomerates. These so called right wing politicians in Texas keep trying to build more roads with hefty price tags.
Throwback 3:05PM (7/06/2009)
There is this ongoing fallacy that GM is in trouble becuase they build cars people won't buy. GM sold the 2nd most cars in the world last year. They sold the most cars in the US last year, yet again. GM's problem is/was their cost structure, which required them to maintain a 25% market share in the US to make money. That is unsustainable with the amount of competition we have. Before the economic downturn GM was profitable in all their markets except the USA, again due to cost structure. Now that GM is politician owned and will have virtually all of the debts erased they will be profitable in the US. I think a gas tax would hurt GM. Low gas prices mean more sales of Pickups and large SUVs something GM does very well.
ruffrydertitan 3:53PM (7/06/2009)
Raising taxes, under the guise of unequal taxes on varying gas types, are nothing more than excuses for being fiscally irresponsible. Shifting the blame to incorrect gas taxes, GM, China, global warming. Its all been rehashed since the Boston Tea Party.
GM doesnt need anymore help with our tax $$$ directly or indirectly. It needs some more right sizing of its culture and ideas about what consumers "want". A $40K Volt is not the fix nor more than the Hybrid full size SUV they offer, with a little sticker along the side of the vehicle saying " H-Y-B-R-I-D".
Disgusting!
Jimbo 3:28PM (7/06/2009)
win39: It depends upon how the refinery is configured. Most refineries in the U.S. are set up using fluid catalytic cracking, which produces a higher fraction of gasoline compared to diesel. Overseas refineries tend to use hydrocracking, which produces a higher fraction of diesel compared to gasoline. Hydrocracking also produces cleaner fuels (less sulfur and nitrogen) and the gasoline fraction tends to be more chemically stable.
win39 3:44PM (7/06/2009)
Cost structure is a popular theme with the anti-union folks, but it comes down to the fact that GM does not produce a car that competes with a Honda or Toyota without cutting the price below the competition in order to sell it. I would say that is a marketing and quality perception issue, not their cost structure. If you have to discount your cars 3 or 4 thousand dollars to sell them, then then everything in the cost gets bigger.
Just a loose example for understanding: if you target a car to sell for $20K with a cost of $10K your cost is 50 percent. If you end up offering $4000 in rebates and/or low interest rates, suddenly your $10K cost is 62.5 percent. The problem is not the cost, but not being able to sell your product for its projected price. Of course this is seen as an opportunity to kill the unions and to cheat your former employees out of the retirement benefits that they earned under work contracts agreed to by the employer.
win39 3:45PM (7/06/2009)
Thanks. I did not know that.
Snowdog 1:07PM (7/06/2009)
This really isn't even worth discussing. Fuel taxes make a lot more sense than CAFE, but will never happen for political reasons. It would be political suicide to raise gas taxes as the vast majority of Americans don't want them.
Some times democracy sucks. But you have to take the bad with the good. It is still better than everything else.
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Matt 3:08PM (7/06/2009)
Why doesn't anyone bring up the reason for the 24-cent tax on diesel?
As you know ALL freight trucks run on diesel. You may also be aware that the tires of these large trucks run a much higher pressure (~100 psi vs. ~30 for passenger cars). The higher loads from these trucks are responsible for nearly all damage to roads that doesn't occur from the sun or rain. Therefore, freight trucks are taxed more via fuel taxes to assist in road maintenance. The fact that the same fuel is used by diesel passenger vehicles is incidental, and remains a very small percentage. It could also be argued that diesel cars are really the only ones being overtaxed, since many diesel pick-up trucks and SUV's have higher pressure "light truck" tires, therefore doing more damage than the cars. Oh, and while gross vehicle weight (GVW) is a factor in road damage, tire pressure is the main culprit in surface damage since it translates into force/area.
http://cat.inist.fr/?aModele=afficheN&cpsidt=2110847
http://www.greencarcongress.com/2008/06/bills-in-us-con.html
paulwesterberg 3:34PM (7/06/2009)
They haven't increased the federal fuel tax since 1993. I think they should increase it slowly over time, like 10 cents per year, starting next year. That way people wont be shocked when fuel costs more next year and we people can start to prepare to use fossil fuels more wisely.
We are at or near peak oil and prices will rise in the future, but people don't often take that into consideration when buying a vehicle.
Jimbo 3:48PM (7/06/2009)
Matt: A couple corrections: Up to 25% of the heavy "light-duty" trucks are sold with gasoline and they also have the high-pressure tires. The only diesel SUVs available have low-pressure tires like cars.
Jimbo 4:00PM (7/06/2009)
Paul: Minnesota did something similar a little over a year ago. They incrementally raised the gas tax by 5.5 cents/gal over a period of 6 months in order to raise funds for road repair. Some people complained, but most didn't. A tax increase that small when the price can fluctuate by 5-10 cents a day was barely noticeable.
Brandon 1:16PM (7/06/2009)
One method punishes people for driving. One method forces companies to make and sell more efficient cars. Which one of those makes more sense? The choice should be obvious.
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Snowdog 1:22PM (7/06/2009)
The choice is obvious once you look a bit below the surface.
The one that makes fuel more expensive is the sensible one. Then market forces will just work naturally to achieve the desired results. Less fuel used. More demand for fuel efficient vehicles etc...
Try to force manufacturers to build vehicles for a market that isn't there, never made sense and still doesn't.
I am all for a switch from CAFE to increased fuel taxes, but there is no way to get there politically.
GoodCheer 1:28PM (7/06/2009)
... or, to put it another way
One method incorporates the external costs of driving (including air quality degradation and infrastructural considerations) into the actual cost of driving. The other method requires automakers to establish artificial price and sales structures to warp the market through supply-side manipulation in favor of fuel efficient vehicles that the market would otherwise not choose.
The choice should be obvious.
Brandon 1:31PM (7/06/2009)
Well apparently what I was trying to say was not getting the point across. One method makes people drive less (bad), and one method makes people drive the same, but in a more efficient manner (good)
oollyoumn 1:40PM (7/06/2009)
What's wrong with driving less? My car is getting more than 60mpg and I use it at a rate of less the 10k mi/yr, but I am looking for ways to drive less. Even when I own an BEV (soon I hope), I will still look for ways to reduce my driving.
Dave - Phoenix 1:47PM (7/06/2009)
The CAFE standard forces car companies to make fuel efficient cars that "might not want to buy", if gas prices remain low.
A gas tax will definitely make consumers "want to buy" fuel efficient cars.
So..... I say it takes both CAFE "and" a gas tax to get fuel efficient cars and customers who will buy them.