Super Gas Saver » taxes

Higher Federal Fuel Taxes for All

Tue, 02 Dec 2008 15:21:50 +0000

Today is the day executives from the Big 3 Detroit automakers; Ford, GM and Chrylser go to see Congress, hat in hand, to ask for more money. In exchange for this largess, they’ll be told what kind of cars they need focus on in the future.

What do members of Congress know about the auto business? Well, nada, of course. What qualifies them to dictate to those who presumably have expertise in the business what kind of products will return them to profitably? As with many things Congress meddles in, they have no expertise. Of course, that hasn’t stopped them from meddling in the past, and I seriously doubt it will in the future.

One of the things that has been reported in various locations is that they’ll be strongly encouraged to produce new fuel efficient vehicles. The problem here is that car makers must produce what people actually want to buy. That’s one of the ways Detroit got into so much trouble in the first place. For about 30 years, until relatively recently, they made a fairly inferior product.

Oh, sure, there were exceptions, but on the whole, Detroit was soundly trounced in the product arena by offerings from overseas, such as the fine vehicles from Honda, Toyota, and Nissan. Americans responded as consumers always do, by voting with their checkbooks. The votes weren’t kind to Ford, GM, and Chrysler.

In the last decade they began to turn things around. Recently some pretty darned good vehicles have come from Detroit. World class, even. The new Cadillac CTS springs to mind. Other recent offerings from the Big 3 that bear mention in a positive light are the Silverado Pickup, the Corvette, Mustang, Chrysler 300, Pontiac G8, Ford Flex, and Chevy Impala. There’s also the upcoming Chevy Volt to consider, as a cutting-edge, new vehicle.

The problem now is that Congress wants the big three to produce the new, smaller, fuel efficient vehicle of the future. That sounds just great. Why is that a problem? It’s a problem because Americans are loathe to actually buy vehicles like that.

We want larger vehicles for larger families (and many times, smaller ones too), and American drivers have always had a love affair with power. As fuel prices recede from their record breaking spike of the summer, the chance of American drivers demanding cars like the Honda Fit in any kind of quantity will recede along with them. The fact is that the demand for these cars is almost purely economic. When people’s personal economies are impacted by high fuel prices, they turn to relatively fuel efficient vehicles.

Why would any of the big 3 auto makers want to produce smaller, more fuel efficient cars when the car buying public would rather be driving larger, less fuel efficient vehicles? Well the answer is, they wouldn’t.

They wouldn’t unless they could be guaranteed that there would be a demand for higher efficiency vehicles. Who could provide that demand? Why the meddlers we elected to Congress, of course. As incoming White House Chief of Staff Rohm Emanuel stated a couple of weeks ago, a crisis lets you do things you couldn’t get away with otherwise.

Many politicians and others would love to see higher fuel taxes. That would raise fuel prices, and that, in turn, would force American drivers to turn to smaller, more fuel efficient vehicles. Driving smaller vehicles that would consume something closer to “our fair share” of the world’s resources would make some tickled pink. That group would not include the majority of American drivers.

A bit of a back room deal would let so many groups be happy. The politicians would be saving the Big 3 and the environment at the same time. In addition, they can raise taxes on something with a fairly inelastic demand, so revenue will rise even as prices increase. You know they have to finance all these bailouts somehow.

The environmentalists would be thrilled that our resource consumption would be reduced. And the big three would be overjoyed to get their latest handout and the promise of some demand for their new products.

Over the long haul, more fuel efficient vehicles will have to be produced, as at some point in the future, prices will increase. The problem is that the development horizon, especially for advanced technology vehicles, is exceedingly long. That means that there will be a lag between when there is actually enough demand for these vehicles and when they begin rolling off the assembly lines.

There is also the question of cost. Such vehicles are very expensive, as new technologies always are. Does anyone remember the $4,000 PC? 15 years ago they were fairly common, but try to find one today that’s not a hot rodded, customized gaming rig. So it will be with new technology vehicles.

The problem for the average driver and taxpayer is that few drivers want to spring for the additional money it takes to purchase one of these cars. The new Chevy Volt will be about $37,000. That’s pretty steep for a 5 passenger sedan, when equivalents from Chevy, Honda and Toyota can be had for about 30% less than that. Toyota is still losing a bundle on every Prius they sell, even after almost a decade of production.

Why is this a problem for the taxpayer? Because you’ll be helping to pay for every one of these new vehicles that your neighbor parks in their garage, that’s why. There are hefty subsidies, in the form of income tax credits, to encourage their purchase by bringing their cost more in line with traditional vehicles. So, you’ll pay higher taxes to fund the industry bailout, the advanced technology vehicle subsidies, and the sure-to-be-on-the-horizon Federal fuel taxes. Make no mistake, driving will get expensive, even as fuel prices are dropping.

Who gets left out in all of this? Why the average, American driver, of course. Who kissers their ass in all this? Not those who they sent to Congress with their votes. Not the Big 3 execs, who will be glad to escape with a few billion and the promise of economic conditions that will favor the vehicles they’ve been directed to produce. Would someone please look out for the average driver?

How Will President Barack Obama Change What You Drive?

Sat, 08 Nov 2008 00:20:12 +0000

America has a new President, Barack Obama, who has a very different set of ideals and views than those that have come before him. Weather you agree or disagree with him, he is our President, and as was his mantra throughout his election, change is on his agenda.

That change may extend into all facets of your life, including what you drive. President elect Obama has some very ambitious targets. His programs are, to date, a bit short on specifics, yet long on promise. One thing is for sure, the old wheels will undergo a bit of transformation in the coming 4 years if our new President has his way. Just how will those changes affect what you drive to work every day?

A brief glimpse at his agenda sheds some light on the subject (President Obama’s proposals in bold)–

• Increase Fuel Economy Standards.

Questions – Fuel economy standards are already set to increase substantially in the next revision of the CAFÉ standards that are due to phase in completely by 2020. The revised CAFÉ standards provide for an increase from the current 27.5 mpg to 35mpg. Is Obama proposing an acceleration, a further increase, or is he just referencing those standards already set to take affect?

Development lead times on vehicles currently 2 – 5 years. That is for vehicles using current technologies. A radical revision of fuel economy standards would require advanced technologies, and subsequently longer development times for vehicles using them.

Americans have shown a propensity to desire larger, safer, more practical (until you have to park them) vehicles. They have also demonstrated a willingness to pay the extra in fuel costs is takes to drive them up to a point. The point was exceeded about late June of this year as drivers fled large SUVs and pickups like voters running away from the Republican Party in November.

This increase in fuel economy will have a negative effect on tax revenue, as I discuss further below.

• Get 1 Million Plug-In Hybrid Cars on the Road by 2015.

This is an extremely ambitious target, especially given the current state of the automotive landscape. The first plug in hybrid on the horizon is the Chevy Volt, set to debut in 12 – 18 months. This should be followed in short order by the Toyota Prius plug in. If you’ve looked at these vehicles, you’ve found they are not inexpensive.

The Volt in particular is far out of reach of the average car buyer, who stands to never recover the $18,000 difference between that and the 4-cylinder Chevy Malibu (by most accounts a pretty nice car). The Malibu gets 25 mpg, so it isn’t really a gas guzzler for a car that comfortably seats 5 adults.

One will note that vehicles rushed through the engineering stage tend to exhibit more flaws, technological glitches and malfunctions than those that have a longer technological gestation period. That’s something to think about when having a target of 1 million such vehicles on the road in only 6 years.

• Create a New $7,000 Tax Credit for Purchasing Advanced Vehicles.

This would doubtlessly offset some of the budget crunch Americans will feel when purchasing the much more expensive advanced technology vehicles. It also brings up another question, to whit – where is the money for this going to come from? There are currently generous tax incentives for such purchases put into place by President Bush. These new ones proposed by Obama are about 90% higher that the existing tax credits. This will cost taxpayers quite a sum of money.

It will assist the development of some new technologies by increasing consumer demand, but at what cost? You could watch for a healthy Federal gas tax increase to both make advanced technology vehicles more attractive to drivers by increasing the price of fuel, and help fund the tax credits. Fuel has a relatively inelastic demand, so revenue tends to rise as tax levels increase.

Hybrid and other advanced, fuel efficient cars will also drain from the nations coffers in another way. Currently, roads are largely financed by users in the form of motor vehicle fuel taxes. That is basically fair. The more you drive, the more you pay, and the heavier and harder on the road your vehicle, the lower its fuel economy, and the more you pay.

President Obama will probably have to push for Congress to increase the Federal fuel tax rate in order to avoid a drop in aggregate motor fuel tax revenues. Many politicians are loathe to do this, especially after the high fuel prices the nation endured this summer. No matter how they feel, the politically astute among them are well aware how raising gas taxes looks when the next election rolls around.

High motor fuel taxes are not conducive to rebuilding the economy, as it costs businesses, and thus consumers, dearly. It will also cost jobs, because when they are confronted by price increases in one area, businesses look to cut costs in others. The largest cost component of almost every business is labor. That means it is also the most likely to be cut when other costs increase.

• Establish a National Low Carbon Fuel Standard.
• A “Use it or Lose It” Approach to Existing Oil and Gas Leases.
• Promote the Responsible Domestic Production of Oil and Natural Gas.

The extent of which this occurs will go a long way to determining three things; maintaining low fuel prices, national security due to increased supply reliability, and the reduction of our dependence on foreign oil.

In addition, does anyone think other areas of the world are actually more environmentally conscious than we are in the US when exploring for and extracting oil? That would mean that the more oil we pull out of the ground here at home, the better off the world is environmentally. In addition to the lower environmental cost of production, there is a lower environmental cost of transporting locally produced oil.

One more thing to examine is the tremendous number of different environmentally required gasoline blends currently in use throughout different areas of the United States. That incurs increased transportation costs, poses a greater environmental impact, and lowers delivery efficiency. It also drives up fuel prices and causes localized availability problems. This is one area that stands to be looked at and in the spirit of the new Obama administration, changed.

So, how will President Obama change what you drive? Who can tell for sure, but here’s what it could be like:

It will get much better fuel economy, possibly through much more advanced hybrid technology.

Power plant for the Obama car – A very small, algae-biodiesel fueled (this would help meet his targets for lower carbon emissions) turbo diesel that would run constantly at its most efficient RPM and be used only to charge batteries. In many cases it wouldn’t run at all and the car would be driven solely by its advanced electric motors. They would be used for greater efficiency and lower weight. Advanced technology batteries could be charged from a standard 220 or 110 volt wall socket if needed.

Weight is the enemy of fuel economy so look for advanced materials in everything from power window motors (rare earth magnets) to body panels (fiber composites). In addition, you’ll be leaving your boat at home, since vehicles large enough to tow them may be levied a special tax in order to help consumers decide not to drive them. Such a tax exists now, but isn’t applied to trucks and SUVs, only cars. This policy could change.

Look for tires and wheels to get lighter in an attempt to reduce rolling resistance and rotational inertia. This will help increase fuel economy, vehicle performance, and ride quality.

Cars will get smaller, but safety targets won’t, so look for advanced safety technologies to be used, as long they don’t substantially increase the weight of the vehicle. Radar and Lidar proximity sensors will be coupled with stability control, inertial sensors, and GPS systems to help avoid crashes.

Advanced materials will be required to maintain the structural integrity of the passenger safety cage, while reducing the size of heavy, energy absorbing crumple zones. The crash energy will still have to absorbed and dissipated before reaching the hapless passengers trapped inside the vehicle, or deaths and injuries will rise.

The light weight vehicles and high torque electric motors could give us greatly enhanced fuel economy with pretty spritely 0-40 times. This will be great fun around town, but it’s possible that the heavy hand of government knowing what’s good for us may step in to limit our fun – in the name of fuel economy, environmental responsibility, and safety, of course.

We will drive some advanced vehicles, but we’ll probably live in interesting times.