How to boost fuel efficiency? Raise taxes, executives say

[audtatious]

DETROIT (Reuters) - There's a simple way to get Americans to drive fuel-efficient cars, according to auto executives, but they are not going to like it -- sharply hike the gas tax.

While politically unpalatable, gasoline that costs at least $4 a gallon would have a far greater effect on American fuel usage than Washington's $25 billion loan program meant to spark investment in new technologies, executives told the Reuters Auto Summit in Detroit.

Consumer demand for fuel-efficient cars like Toyota Motor Corp's Prius and Ford Motor Co's Escape hybrid surged last summer as gasoline prices soared above $4 a gallon.

But with the pressure off -- the average U.S. retail gas price was $2.66 a gallon at the end of October, according to the benchmark Lundberg survey -- Americans are once again buying fuel-hungry sport utility vehicles and other large cars.

"The U.S. allows the price of gasoline to go back and forth across this line where the consumers don't care about fuel efficiency and where consumers do care about fuel efficiency," Mike Jackson, chief executive of AutoNation Inc, the No. 1 U.S. auto retailer, told the summit in Detroit on Wednesday.

Gradually raising gas taxes to the point where fuel costs $4 to $5 at the pump will do more to stimulate demand in next-generation vehicles like General Motors Co's forthcoming Chevy Volt plug-in hybrid than any other policy initiatives, including raising the national fuel efficiency standards know as CAFE, Jackson said.

Jerry York, a former GM board member and an adviser to billionaire investor Kirk Kerkorian, agreed.

"Unless gas is $3.50 or $4 a gallon, consumers are not going to want to buy those cars," York said on Monday.

'AFRAID TO TOUCH' GAS TAX

The obvious impediment to such a move is political.

Higher fuel prices in the midst of a fragile economic recovery would likely be extremely unpopular even with consumers who favor "green" issues and less dependence on foreign oil.

Consumer sentiment toward car companies may also be at a low that is rivaled only by their attitudes toward big oil companies, particularly after the federal government pumped more than $100 billion into GM, Chrysler and other auto industry players to prevent their collapse during the most brutal economic downturn the United States has faced since the Great Depression.

"In the United States, we're afraid to touch the fuel price," said Tim Leuliette, chief executive of privately held parts supplier Dura Automotive.

"We've got to continue to raise taxes in the United States so that, by the end of the next decade, gas is about $8 a gallon in today's terms," he told the summit on Tuesday.

"What you have to do is do it in a manner that is slow enough and predictable enough that vehicle selection and choices by people over the cycle can be made in a logical way," he said, a point also emphasized by Jackson of AutoNation.

Such a shift would also help the global auto industry, which today produces an entirely different lineup of cars and light trucks for the U.S. market than Europe, where fuel tends to cost two to three times more than in the United States.

"The cars that America wants are typically cars that only work in America because of our fuel prices," Leuliette said. "What we've created in the United States is an artificial environment."

MANAGEABLE SHIFT

As long as tax rates rose gradually, higher fuel prices would not become an onerous burden on consumers, the auto executives said. A floating tax rate would also smooth out sharp swings in the price of gasoline, which tracks the sometimes-volatile oil market.

"If we migrate slowly over years to $4 or $5 a gallon, everybody will adjust, everybody will manage. It's not a problem," Jackson told reporters.

Jackson said he would like to see the federal government rebate the amount of fuel tax paid to consumers at the end of the year, which the car retailer argued would allow Americans to buy more fuel-efficient cars.

York, the investor, suggested that Washington could limit the stress that higher fuel taxes would impose on the poorest Americans through a subsidy program, similar to one currently in place for food stamps.

Dura's Leuliette also noted that Americans could offset a gradual rise in the fuel tax by purchasing more fuel-efficient vehicles and choosing to live closer to their jobs.

German households, he said, on average spend less of their budget on fuel than Americans do, largely because of their choice to use it more efficiently.

"Energy independence in this country ultimately means that fuel has to be more expensive," Dura's Leuliette said.

(Additional reporting by John Crawley. Editing by Peter Bohan and Matthew Lewis)

[Infinitiguy19]

So the Goverment f***ed up on cash for morons and they want the American to pay the bill...Wow. Almost any other country is looking good now.

[PapaSmurf2k3]

I had thought of this a little while back when fuel spikes were happening left and right... although I wasn't thinking they should go to freaking $8 a gallon... more like $3.50 and keep it there.

[MinisterofDOOM]

How the hell is it any of their business whether I drive a fuel efficient car?

[PapaSmurf2k3]

There has to be some price where the majority of people would want to drive an efficient vehicle, but still cheap enough to where there IS a decent market for performance models.

I'd say "'bout tree fitty"

[MinisterofDOOM]

I'd say "'bout tree fitty"

$3.50s okay. That's still almost $80 per fillup for me though. If it can be lower, I'd prefer lower. I don't see why the feds need to meddle in this s*** at all. Since when is it their job to regulate consumer demand?

I've paid $3.50 and even $4+. And I'll do it again if I have to. But I don't see why the price should be artificially increased to that point.

[PapaSmurf2k3]

cos then you can more accurately allot your budget.

I'm saying do it just to smooth out the spikes. Sometimes they'll make more off the gas, sometimes they won't make as much.

The government will get their money one way or another... I guess we might as well smooth out the gas prices a little while we're doing it.

[PapaSmurf2k3]

And FYI- I'm just playing devils advocate here... I could really go either way. Personally, I'd rather pay market price, but then again, I don't live paycheck to paycheck and any minute increase in fuel prices won't break me and kick me out of my house... but I know lots of people in this country are like that.

Normally I just say eff em, but I could really see how you could get screwed like this and have it be totally out of your hands. Then I loop back to saying eff em, cos they shouldn't be driving Jeep Grand Earth f***er 9000s if they live like that anyway (which most do... driving just themselves back and forth to work, hauling no cargo).

[MinisterofDOOM]

I don't want my budget planning smoothed out. I want to save money when I can.

[Dattebayo]

I'm getting tired of living in a country where it's citizens are treated like children.

[MinisterofDOOM]

I'm getting tired of living in a country where it's citizens are treated like children.

EXACTLY. I am perfectly capable of making my own decisions and operating my own brain. I do not need my hand held. I do not want my hand held.

[Dattebayo]

Reading though, it's wonderful that we are trying to emulate the Germans so hard... but wtf, are we Germany? No...

If they really wanna go this route, then all they need to do is limit gas deliveries similar to how it was in the early 80s. Not that I want them to, but that is less insulting...

[MinisterofDOOM]

I don't think it's wonderful, but I absolutely agree that we're not Germany and thus trying to do things they way that very different country/geography/culture does things is stupid.

My favorite part of that article is the suggestion that our automotive environment is "artificial" because it'd different than others. Leuliette's a whackjob. Our automotive "environment" is what it is because it is. Altering fuel taxes to impact demand is what's artificial. The guy is a top-class nut.

I like how all the people they quote in favor of this move have something to gain from this policy's adoption. GM can only sell the Volt if people NEED that car. They even admit it in those quotes. Why should we punish the consumer in order to artificially manipulate demand for products no one really wants.

What is the POINT of this? To look green? To sell Volts? It CERTAINLY does not benefit the American citizen or the consumer.

IF anything, this proves that the feds need to step away from the green-mandating in the automotive world. They're sitting there scheming up ways to FORCE people to want the fuel efficient cars they FORCED the automakers to build. All of this goes against REAL consumer demand...THERE'S your "artificial" Leuliette. No one WANTS a Yaris. Some people buy them because they need them. That will not change even if gas costs $70 per gallon.

[audtatious]

This is a nudge. Those in power, and the lobbyists that are pushing them, are looking at ways to initiate change that they want implemented. Doing a nudge is their way of forcing their change by making the actions of others cost more, thus those actions will start to die out. In this particular case they get two things: Less driving (or an increase in the purchase of more fuel-efficient cars), and more tax money in their coffers to waste on other inane BS within their agenda.

The premise of increasing the gas tax is that people will start buying more efficient cars in order to keep their monthly gas expenditures lower. As a side to this, it could give a bump to the auto industry as well and it will help with their green-initiatives to save us from Global Warming. There are numerous problems with this direction. First, these green-machines are more expensive to own and maintain (true hybrids), plus their cost in the secondary market is still way high so they are not viable to those on the poor scale, which becomes the second issue. Third is that increasing the gas tax will increase the cost of goods and supplies to everyone, thus all goods and services will cost more. With the growth of our poor class and the condition of our economy for years to come, this is NOT a good thing. With other initiatives that will increase cost, like Cap and Trade / Health care, there will be a large percentage shift from middle class to poor. Not a good thing in the least.

The Gov needs to keep their nose out of the free market and our pocket books.

[nissangirl74]

York, the investor, suggested that Washington could limit the stress that higher fuel taxes would impose on the poorest Americans through a subsidy program, similar to one currently in place for food stamps.

Dura's Leuliette also noted that Americans could offset a gradual rise in the fuel tax by purchasing more fuel-efficient vehicles and choosing to live closer to their jobs.

The level of stupidity within the decision makers in this country astounds me.

The unemployment rate is over 10%. People are losing their homes.People are losing their cars.People can't afford to feed themselves and their children. How the hell are these people supposed to go out and buy a fuel efficient vehicle?

I'll protest on the steps of capital hill before some little prick tells me what the hell and I can drive and how much I should have to pay for fuel.

[Razi]

The unemployment rate is over 10%. People are losing their homes.People are losing their cars.People can't afford to feed themselves and their children. How the hell are these people supposed to go out and buy a fuel efficient vehicle?

Agreed.They should be focusing on things other than what the hell we are driving.

[seang]

before some little prick tells me what the hell and I can drive and how much I should have to pay for fuel.

Their's are indirect means of manipulation.

[aris_unlimited]

That plan would NOT get me to buy some little fuel efficient hybrid piece of crap......or something comparable. I would just drive less.

[nissangirl74]

F*** raising taxes!!!They want to make an impact? Replace every cab in New York City, Atlanta, Los Angeles, Miami, Washington DC, and Dallas with a hybrid vehicle. Less fuel consumption, less pollution, better for everyone involved. Donate all the used taxi cabs to Goodwill, get a tax break, and tell the lobbyists in Washington to go pound sand up their a** with a shovel!

[ADDirishboy]

F*** raising taxes!!!They want to make an impact? Replace every cab in New York City, Atlanta, Los Angeles, Miami, Washington DC, and Dallas with a diesel jetta!

ftfy

[neda240sx]

i was watching 60 minutes about a month ago, and they said that cows give 3 times as much polution then cars do, the government has to stop telling us to start driving hybrids and smart cars while they drive around in streched hummers and catilacs

[ScrapMetal]

If they were to raise the transportation tax on gasoline to anything over $5 a gallon, the government would basically be forcing (most of) us to drive what they want us to drive, fuel efficient hybrids/econo-boxes. Sounds a little socialist to me.

To me at least, it just goes to show how a government can control it's citizens without having to outright tell them what to do. They said it themselves, when gas was expensive fuel efficient vehicles were selling like hot cakes. When gas came back down to a "normal" price, people started going back to SUVs and Pick Up Trucks.

The government wants you to buy fuel efficient vehicles. How do they get you to to buy one without having a government official have to knock on your door and tell you "you better buy one" (Cuba style)? Raise the transportation tax to the point where you're going to have to buy a fuel efficient car.