Here’s an interesting article about the expansion of hybrid vehicles at the Detroit Auto Show. The article has a couple of nice comments about issues that I think are important, namely the unpredictable pace of technological change and the role that consumer preferences play in shaping the decisions of the manufacturers.
Past auto shows have featured varying promises and predictions about greener vehicles. In 1998, for example, some automakers forecast that they would be ready to produce hybrids by 2001 and fuel cell vehicles by 2004. Now, hybrids are just making headway and widespread availability for fuel cell vehicles is probably a decade from now.
“There clearly is a desire to improve fuel economy,” said Mike Wall, an analyst for the forecasting firm CSM Worldwide. “The trick is consumers still want the high horsepower vehicles, the large vehicles.”
Still, though, environmental groups insist that consumers will be better off if we are forced to purchase vehicles that do not have the characteristics that we value:
“Overall, they’re not doing a good job,” said Brendan Bell, an expert with the Sierra Club’s global warming and energy program. “They’re creating a few vehicles. But at the same time under current fuel efficiency standards, when they build an efficient vehicle they can build another gas guzzler. That is really taking us backward.”
Also related are this post of mine from March 2003 on CAFE standards, and this Economic Scene column by Virginia Postrel on CAFE standards from December 2001.
The “enviros” never bother to deal with the issue of economic risk. Imagine, for example, that the auto manufacturers had decided to make an immediate 100% switch to electric vehicles in 1995. Every new vehicle available in the market would have been a “short to medium commute” vehicle with no heater or air conditioner, dangerously low power and an even shorter operating range when the batteries “aged” about 3 months after purchase. While the “enviros” might have thought the manufacturers were “doing a good job”, I don’t think these vehicles would have passed the “will the dogs eat the dog food” test.
Technology does not magically become “ready for prime time” because some environmentalist believes the time has come. Consumers are willing to buy things that do what the consumer wants them to do. Electric vehicles didn’t do what consumers wanted, so they went nowhere (figuratively and nearly literally. Hybrids are a great improvement, from a utility perspective. Fuel cell vehicles have a long way to go, as does the intended fuel source for those vehicles.
Most likely, the customers will be ready for the technology some time after the technology is “ready for prime time”.
Manufacturers also play some role in shaping the desires of consumers. Auto manufacturers spend tens of millions annually encouraging consumer demand for large vehicles that use a lot of gas. This is not an irrelevant fact, nor is the larger profit margin sales of such vehicles usually offer manufacturers. Nor, for that matter, is the comfort level large, inertia-driven American auto makers derive from being able to make basically the same kind of vehicles every year.
This last factor is probably a lot more important than most people realize. Technological change may develop momentum in the market at some point, but to get it going in the safety area government had to beat automakers over the head. Major improvements in fuel economy at this stage are no different. If auto makers don’t have to pay costs associated with reducing highway deaths or air pollution or dependence on Saudi oil, they won’t.
I would prefer to alter the path of least resistance for auto manufacturers toward more fuel efficient vehicles through taxation of fuel rather than through regulation of vehicle performance, for several reasons. But if we don’t take some steps to increase fuel efficiency now we will be forced to take the later, and the price for the delay will be high.
The government didn’t have to force the automakers to install seat belts in their vehicles; they had to force consumers to buy them by making them mandatory. Now, they have to force many consumers to wear the seat belts they were required to buy by making failure to wear a seat belt a primary traffic offense. Same was true of air bags, which were available, but not standard equipment, and achieved a very low market share.
Similarly, there are small, efficient cars available in the marketplace. The manufacturers have to sell some of them to offset the lower fuel economy of larger cars under the CAFE standards. They do this largely by taking a lower margin on these vehicles to encourage sales. This then requires larger margins on larger vehicles to produce the desired level of profit. If consumers wanted smaller vehicles, they could buy them and get some very good value for dollar. So far, that ain’t the case.
Government at the state and federal levels already tax gasoline at rates which bear little relation to each other or to rationality. In some states, direct taxation at the pump is ~1/3 of the pump price of the gasoline. Even in this scenario, there is never enough money to build and maintain roads (legislators’ view), but there is always money to spend on public transportation schemes which reliably fail to attract sufficient ridership to cover costs.
Based on government’s current performance, encouraging them to collect even more taxes on gasoline as a way to improve fuel efficiency is laughable. If $0.50 per gallon (in some states) is not enough, how much will it take: $1.00 per gallon; $1.50 per gallon; more? Maybe gasoline could be taxed like cigarettes.
I am sure that Volkswagon is willing to make as many GTIs as they can sell at a profit. Toyota and Honda would probably be happy to build and sell many more hybrid sedans if they could do so at a profit. However, I would be willing to bet that sales of hybrid SUVs will take off, because consumers want SUVs.
“They’re creating a few vehicles. But at the same time under current fuel efficiency standards, when they build an efficient vehicle they can build another gas guzzler. That is really taking us backward.” – This is like suggesting that not increasing program funding as fast as some would like it to increase is a program funding cut; or that repealing tax cuts is not a tax increase. Failure to gain a yard is far different from losing a yard.
I don’t know what country you are writng from, Ed, but in the United States far more gas tax money goes to roads than to mass transportation in any form. I’m not objecting to this either, necessarily, only pointing out that the boilerplate gripe about “liberal politicians” only wanting higher taxes to fund “pet projects” is just a dodge in this context — even without reference to the obvious fact that no politician wants to increase gas taxes at all for any reason.
As for the fuel-efficiency regulations, their objective is precisely to “gain yardage” (improve overall fuel efficiency in transportation), not to not lose any. My argument with the enviros is that taxation is a better tool for this job than regulation. My argument with the academics always eager to believe every excuse auto manufacturers make for churning out vehicles designed to ensure that we keep sending billions to the bloody Saudis is that they are ignoring the price we have already paid and will continue to pay for buying into these excuses.
Down what black hole would the gas tax money go? What will the government do if the tax really does reduce consumption and tax revenues actually decline? Look at how governments are hooked on tobacco taxes.
What are the black market / organized crime possibilites? Gas hijackers / bootleggers? With enough money involved it will happen.
The tax will of course be applied equally to everyone except for those who are special and deserve an exemption. The jockeying for exemptions should be quite a circus. There are endless opportunities for corruption and mischief.
Zathras,
I am writing from the US; in fact, from the metropolitan “District of Comedy”. I understand that far more of the gasoline tax is spent on roads than on mass transit. However, I am sure you understand that all of that tax revenue was collected on motor gasoline and diesel and was intended to be spent on roads and bridges.
Also, too many of “our” politicians are firm believers in the maxim: “If it moves, tax it.” Some may be reluctant to increase motor fuel taxes, but a whole lot of them were big supporters of a carbon tax not that long ago; and, there’s carbon in motor fuels, so they would have been taxed as well. In fact, if memory serves, there was a proposal to increase the federal motor gasoline tax in the last congress.
Correction: It is merely _CLAIMED_ by the lying, self-serving politicians that the gas and diesel tax monies are “spent on roads,” in order to continue to hoodwink the voting public.
In reality, by law it is _NOT POSSIBLE_ to “earmark” tax dollars in the fashion politicians commonly and FALSELY claim. On the contrary, Congress _REQUIRES_ that all tax dollars go straight into the “General Fund,” to be spent on whatever pork-barrel projects Congress is pleased to vote for in an attempt to “buy votes” from its constituents.
This is equally true of =ALL= of the government’s other alleged “trust funds,” such as Social Security: =ALL= government-collected monies actually go into the “General Fund,” and all that is left in the alleged “Trust Funds” are “I.O.U.s” that state: “I owe myself umpty-ump trillion dollars — Uncle Sam.”
One of the reasons the Federal Government can continue to get away with running this sort of scam is that it does =NOT= use the same “Generally Accepted Accounting Practices” that it forces upon we, its serfs: It uses its _own_ set of “Government Accounting Rules,” that basically boil down to the sort of “single-entry bookkeeping” that most people use to balance their checkbooks — except for this mavelous and miraculous ability Congress has given the Government to loan allegedly “earmarked” money to itself by raiding its so-called “Trust Funds.” If the Government were forced to use double-entry bookkeeping and Generally Accepted Accounting Practices like the rest of we its serfs, it would immediately become _BLINDINGLY_ obvious that the Budget Deficit and the National Debt are both =MANY= times larger that the Federal Government is willing to admit — and even _that_ would not take into account the debt imposed on the people of this nation by the government’s various “unfunded mandates” !
The moral to this story is: =NEVER= trust a politician with a “Trust Fund” — they will STEAL IT EVERY TIME.
Also, what is often unmentioned is that the cars “customers want” are cars with high sales commissions like SUVs (that is, an SUV can carry a lot of options as well as being higher profit in its own right). The fuel efficient cars are low profit and occupy space at the car dealership that could be devoted to another SUV. You can’t stack them with options because that would kill the gas mileage. IMHO, there would have to be a huge shift in customer preferences (like what happened in the 1970’s) before car manufacturers stray from their favorite models.