As oil falls to little more than half of its per barrel price of just a few months ago and the price of gasoline drops from over $4.00 per gallon to not much more than $2.50 per gallon, you have to feel sorry for – Detroit’s automakers.
Four months ago SUVs, pick-up trucks, and big comfortable cars were an extravagance few could afford, and many were wondering why they ever bought them. U.S. car manufacturers were scrambling to cut production of big gas guzzlers and trying to come up with new gas-efficient vehicles as soon as possible.
But now, with gas down 40% in some places, I am sure some people are starting to wonder if they really need to spend thousands extra for a hybrid or if it wouldn’t make more sense to buy a slightly bigger car that might be more comfortable to drive.
You can’t run a business, at least a car manufacturing business, like this. Carmakers cannot switch from model to model overnight. This has been much less of a problem for "foreign" car makers, like Toyota or Honda, because they tend to build smaller, more fuel-efficient cars anyway. That is what they sell in other markets and that is their market in the United States.
But that is not true for companies like Ford or GM. Their market is the United States, and when people want big cars or big SUVs, they look to American manufacturers. The problem is that, when gas prices go up 60% in less than a year, Ford and GM can’t change their models that quickly. It takes a while. And now that gas prices have dropped as much as they went up, do we expect Ford and GM to change direction again? Well, they can’t.
If people want Americans to drive more fuel-efficient cars and cut down on emissions (calling Nancy Pelosi and all the Democrats on Capitol Hill who want to save the planet), there is an easy solution. We just saw it. And it is not raising the CAFE averages for some time five or ten years down the road.* It can be done, and it can be done now. It’s very simple: Raise gas prices back up to $4.00 a gallon or more. At $4.00 a gallon, people will change their behavior. They will drive less. They will buy cars that get better gas mileage. And they will do it now, not ten years from now.
All Congress has to do is to raise gas taxes enough so that gas is back over $4.00 a gallon. The taxes can then be adjusted from time to time so that, if the price of oil goes up again, the tax could be reduced some. Prices would still be $4.00 a gallon, but we wouldn’t have these huge swings in the price of gas.
Also, the overall impact on regular people could be minimized by making the tax increase revenue-neutral. Congress could give taxpayers a rebate of the extra gas taxes (instead of using them to fund more earmarks to nowhere). People who really needed to drive would have the money to pay the higher price for gas, but most people would be encouraged to drive less or to buy more fuel-efficient cars.
This would help Detroit, too. They would know what to build. They wouldn’t have customer demand swinging from big cars to little cars back to big cars all within a few months. Give Detroit a market that is not so schizophrenic, and I think they will build good cars that Americans want to buy. Doing that would help Ford and GM more than a bunch of loans from Washington.
But, of course, Congress won’t do this. They claim they want to save the planet, but when it comes to making hard decisions that could really accomplish something today, they don’t do it. They take the easy way out. They raise the CAFE standards and claim they have done something. But it won’t help much for ten years or more. And, most importantly, any costs from in the increase in the CAFE standards will be hidden in car prices, instead of out in the open where people can see them. That way nobody can blame Congress. I guess saving the planet isn’t quite as important to Congress saving their own jobs.
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* The CAFE (or Corporate Average Fuel Economy) standards set an overall average fuel economy minimum that each major auto manufacturer has to meet. Until recently the standard was 27.5 miles per gallon for cars and 22.2 miles per gallon for minivans, SUVs and pickup trucks. In December of 2007 Congress passed a law that required an increase in the overall average to 35.0 miles per gallon – by 2020. And even then, the standard would only apply to new cars. Older, less efficient cars and trucks could stay on the road until they wear out, which for some people can be a really long time. A higher price for gas would cause people to start getting rid of their old gas guzzling cars now.
Note: I am not convinced of the science of global warming. I do not think it has been proven that the increase of carbon dioxide in the atmosphere is the problem many say it is. However, even if this is not necessary to save the planet, it would reduce our dependence on foreign oil from countries that we would rather not have to send our money to.
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