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.