The Finch Formerly Known As Gold

1 December 2004

Half the gas

Fred Alger Management, a New York-based financial-services operation, has sent a letter to the White House containing a plan which, it says, will cut gasoline consumption in half over the next ten years.

The highlight, if that's the word, of the Alger plan is a $1000 tax on any vehicle that doesn't get 30 mpg. Unlike current Corporate Average Fuel Economy standards, this applies not only to new vehicles, but to vehicles already in use: my 25-mpg sedan and someone else's 12-mpg truck will each be assessed a tax of $1000. And that's for the first year: the tax goes up $500 a year thereafter.

In addition to all this gas we won't be buying, says Alger, we'll get a bump in the GDP from all the new fuel-efficient cars we'll have to buy to avoid the tax.

Something is a trifle askew here, and I think it's Alger's assumptions. In an Alger mid-November market commentary [link requires Adobe Reader], I found this paragraph:

Take Toyota, the Japanese auto giant that had been languishing until its new hybrid vehicle, the Prius, began to attract customers and attention. Now, in California alone, there is as much as a six-month waiting list for the Prius, and Toyota expects to up production to 100,000 units next year. It is no coincidence that Toyota is also seeing a surge in global demand and record profits, aided by the fact that hybrids command in the neighborhood of $4000 more than the equivalent non-hybrid vehicle. Toyota's management recognized a need early, and produced a viable, attractive, and innovative product to meet consumer needs. Now, Ford, Honda, and other rivals are scrambling to catch up.

Toyota has hardly been "languishing"; in the past few years they've scrambled past Ford to become the world's second-largest automaker. And the contribution of the Prius to Toyota's profits so far has been negligible: the first couple of model years were sold at a loss to establish the brand, and the price to dealers has not risen substantially since that time — though dealers are happy to add their own markups to the factory sticker, what with that waiting list and all. Further, there is no non-hybrid Prius to compare on price, making that "neighborhood of $4000" rather illusory: Honda and Ford get about $3400 extra for their hybrids, and Ford has to pay some of that money to Toyota, some of whose technology they licensed for the Escape hybrid.

Meanwhile, the Autoextremist wonders:

Not a popular proposal for the auto companies, at least on the surface, and there are obviously naive assumptions throughout the proposal, but it does raise some interesting questions, as in, 1. Why does a proposal of this nature have to come from a financial company, instead of from people who are actively involved in the automobile business and heavily invested in its future?, and 2. Why isn't the auto industry coming up with an energy independence recommendation of its own, before someone does it for them?

Certainly "energy independence," as envisioned by Alger, is a Good Thing. But I can't help but wonder if we couldn't get most of the same results with a lot less hassle by simply increasing the gasoline tax by a buck or so.

Posted at 2:56 PM to Driver's Seat

One fairly important flawed assumption in this idea is that nearly everyone who drives a low-MPG vehicle do so by choice, or can afford to spend thousands of dollars more for a newer, more fuel-efficient vehicle, as a means of avoiding thousands of dollars in new and utterly unnecessary taxes on what they're driving (and in many cases, still paying for) now.

The most likely result of this plan, if it were implemented, would be a large number of unemployed congressmen after the next subsequent election, or (in the event of an administrative rulemaking) a loud threat of unemployment in conjunction with a demand that Congress repeal the regulation.

The only real value of such a proposal is to energize the SUV-hating greenies in yet another tiresome orgy of Bush/Republican/Halliburton bashing.


Posted by: McGehee at 8:49 AM on 2 December 2004

Well, you have to remember: incentives aren't good enough anymore. We have to have behavior modification.

Halliburton-bashing, incidentally, gets even less support here than in other right-leaning states, inasmuch as the Fortress of Cheneytude has some serious roots in Duncan, Oklahoma.

Posted by: CGHill at 9:39 AM on 2 December 2004

Interesting. So my Subaru Forester, which gets about 29mpg on the highway, would be taxed the same as a Hummer?

And since I just purchased it a few months ago, I should do what? Sell it and buy a new one? Of course, there's the little matter of making every vehicle that gets mileage below the cutoff un-saleable.

Energy-independence IS a good thing. I wouldn't even mind a tax on gas guzzlers, including mine, if it was based on new purchases only, and was graduated instead of having one sharp cutoff. But I don't think that people who already bought vehicles, or are driving around in something used, can reasonably be expected to all ditch their cars and get Priuses.

Another consideration is those who have some reason to need a low-MPG vehicle. My sister, for instance, has a pickup truck because she needs to haul garden supplies and material for home projects on an almost daily basis. It gets horrible mileage, but even if a hybrid was available, she would not have been able to afford a new car. And big families or those transporting people in wheel chairs may not fit in a Prius or Civic.

Posted by: Beth at 12:58 PM on 2 December 2004

Thirty miles per gallon is an arbitrary number; they could set the threshold at 25, or at 40, or anywhere else, and it would be just as meaningful, which is to say hardly at all.

Keep in mind that this was proposed by a financial firm in New York, and rather a lot of people in NYC have no dealings with cars unless said cars are yellow and have a meter attached to the dashboard.

Posted by: CGHill at 1:51 PM on 2 December 2004

Energy-independence is a good thing. I also think that 10 years from now a majority of passenger vehicles on the road will be hybrids. The economics of scale will eventually erase the price difference between, say, a conventional Civic and a hybrid, at which point the choice will be a no-brainer for the economy crowd. (Based on the one I drove for a weekend, there is no other perceptable difference except a few extra guages on the dash.)

A boost in the gas tax just pushes the process along a little faster.

Draconian methods produce unpredictable results.

Posted by: The Proprietor at 11:45 AM on 3 December 2004