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Flint: Gas Tax Nonsense


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Time Out at the No Free Lunch CAFE by Gary Witzenburg (4/25/2004)
What has CAFE really done to our driving habits?

Who wants higher gasoline taxes?

Well, William Clay Ford Jr., the chairman of Ford Motor Co., wants higher gasoline taxes. General Motors executives speak favorably about raising gasoline taxes, too, and John Kerry, the Democratic challenger for President, is on record for liking the idea.

Why? Well, the Detroit auto executives don’t like CAFE, the government rule of 27.5 miles per gallon for a company’s fleet average for its cars, and 20.7 mpg for trucks. They think just raising fuel taxes would make people buy smaller cars, which they now have trouble selling at a profit.

Mr. Kerry said a while back that he liked higher gasoline taxes to help cut the deficit.

Say what?

It’s really sad when such bright people say such dumb things.

First, to Ford and GM. I say that raising the fuel tax enough to drive people in smaller cars would put the Ford Motor Co. toward bankruptcy and cripple GM permanently. Have these people no memory? It was the sudden climb in fuel prices (and the fuel shortage) in 1973 and later 1980, tied to Middle East problems that gave the Japanese their great leg up in the American market. Detroit doesn’t make the most fuel-efficient cars. The foreign companies do.

The people talking about raising fuel taxes aren’t talking about a penny or two. They are talking about 50 cents a gallon for starters, and this on top of price increases that have pushed premium to $2.00 a gallon here in New York State. To be really effective, get Americans into fuel-saving vehicles like the Europeans, probably would require a fuel tax increase of $2.50–$3.00 a gallon, pushing prices to $5 a gallon.

I figure that such an increase would be enacted at 50 cents as year increase for five-six years. I estimate that this would cost GM, Ford and Chrysler a combined total of 15 points of market share, or 2.5 million sales of their profitable vehicles. Sales of Ford F-Series trucks, Explorers, and Expeditions would tumble. GM could kiss the Suburbans and Tahoes and Escalades and Silverados goodbye. Chrysler would lose the Hemi business and Ram and Durango business. Detroit would be hit extremely hard.

Toyota and Honda couldn’t build enough hybrids and the Germans couldn’t make enough diesels for this market. Without those profitable sport-utes and pickups, my guess is that Ford would need government loan guarantees to survive. GM might squeeze by but be forever damaged beyond repair. Even a one-shot increase of 50 cents a gallon would cost them a large number of sales of their profitable vehicles.

Don’t these Detroit auto men remember that they survived by a thread in the early ’80s?

Of course, the Japanese and Koreans would have to build more new plants here to supply the demand as the customers abandon Detroit. Where would they build them? In the non-union states of the old Confederacy. Just as Toyota is building in Texas now, and Hyundai is building in Alabama and Nissan just finished a plant in Mississippi. What plants would close, throwing tens of thousands of good union members out of work? Plants up north in Michigan, Illinois, Ohio, Indiana. And who votes for the Democrats and Mr. Kerry? Those northern workers who belong to unions. So the candidate would be impoverishing his own supporters.

Deficit dumbness

As to cutting the deficit, forget it. Each penny of federal gasoline tax brings in about $1 billion. Fifty cents means $50 billion. Three dollars would be $300 billion. And what would Congress do with the money? I was Forbes magazine bureau chief in Washington for several years. I assure you deficit cutting would be last on the list. There is more pork to be found, more programs to be started, more employees to be hired, more regulations to be written to control our lives, more federal wages and pensions to be raised, and days off to be granted. Give them more money and they will spend it.

So why do automakers suggest such self-destructive ideas? Even the heads of Ford and GM must know the Japanese make better fuel-saving vehicles than Detroit. Even they must know that Toyota, not GM or Ford, is the world leader in fuel-saving hybrids and that the Europeans, Volkswagen, Mercedes, and Peugeot are the leaders in diesels?

So why do they say such things?

CAFE. They just hate having to build those small cars like the Cavalier and Focus and Neon that are difficult to sell without big incentives.

Could the problem be that their small cars just aren’t good enough? The Cavalier in ancient and so is the Chrysler Neon. The Ford Focus is a better vehicle but early recalls hurt its reputation. The designs are just boring. You will notice that there is no American MINI. Detroit never got the idea that maybe if small vehicles were attractive, sexy and cute like the MINI people might like them and pay a good price. The model selection is poor. They make small convertibles in Europe, not here.

Let me mention something else. How do people use their cars in America? They use them to go to work. So when you raise gasoline taxes, you are really taxing people to go to work. Is that smart?

CAFE may have its problems, but it has worked. If GM and Ford and Chrysler want to sell more fuel-stingy cars, let them build better fuel-stingy cars. It’s that simple. If the Toyota Prius were a Chevrolet, how many would they be selling? 200,000? 400,000? 600,000?

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