Auto Makers Demand Higher Gas Prices
by Lloyd Alter, Toronto on 04.17.08
Creative commons: the Toe Stubber
Here is a shocker- all of the automakers building or selling in Canada have asked the Government to look at raising the price of gasoline as a way to cut emissions. They note that it is pretty hard sell cars with greater fuel efficiency to people who don't want them, so just raising the standards won't work unless gas prices make fuel efficient cars more attractive. They quote a 2001 study by the U.S. National Academy of Sciences:
"There is a market inconsistency between pressing automotive manufacturers for improved fuel economy from new vehicles on the one hand, and insisting on low real gasoline prices on the other. Higher real prices for gasoline -- for instance through gasoline taxes -- would create both a demand for fuel-efficient new vehicles and an incentive for owners of existing vehicles to drive them less."
Of course this all may be a red herrring, as the car manufacturers know such increases would be wildly unpopular and unlikely to happen, so now they can say "look, we tried".. or am I too suspicious? ::National Post
According to Nicolas Van Praet in the National Post, the request stated
"While not advocating for an increase in the cost of fuel, this option must be considered as part of the government's comprehensive cost-benefit analysis to effectively reduce [greenhouse gas] emissions at the lowest possible economic cost," says the position paper, prepared jointly by the Association of International Automobile Manufacturers of Canada and the Canadian Vehicle Manufacturers' Association. The trade groups together represent all the major auto-makers selling and making vehicles in Canada, including General Motors Corp., Chrysler LLC, Toyota Motor Corp. and Honda Motor Co.
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Car makers are in the business of making and selling cars. They want to make money, and the way to do this is to sell a lot of small inexpensive profit margin cars, or sell a smaller number of high profit margin cars.
A local truck dealership is advertising it's full size pickups with $14,000 off MSRP. To me this implies the total dealer profit before was probably well in excess of $14,000. hard to make anywhere near that on a $12,000 compact car. Car makers and dealers love SUV's since they are higher profit margin.
If gas was expensive, the demand for small cars would go up and the economy of scale would help profits, at least until all the competition caught up.
IMHO, BMW's Mini was a success on both parts, as it was a small car with good mileage that people wanted to buy, and it was a pretty high priced small car, with presumably a higher profit margin than other small inexpensive cars.
How about we quit debasing our currency which is part of what is driving gas prices up, and start building light rail in more cities to reduce gas usage?
The government probably won't raise taxes, but the manufacturers are correct, the best way by far to increase mpg is to raise fuel prices. Fuel effeciency has significantly increased over the years, but consumers prefer to have more features like GPS, better safety systems, and advanced climate control in the cabin rather than better mileage. A gas tax increase will shift cosnumer tastes towrds better mpg. Companies that don't offer what people want won't sell cars, and they don't want mpg badly enough.
JC - You are correct.
The margin on a $12K compact can not be compared with the margins on a $40k SUV.
Both take you from point A to point B; but if I can convince you to buy the higher margin product, I make more money.
The average fuel efficiency of vehicles in various markets around the world and the relative market price of efficient vehicles are roughly proportional to the price of the fuel in those markets. Prior to the oil crisis of the '70's fuel was cheap. It was also the age of huge sedans and muscle cars. The fuel shortages that followed increased fuel prices which in turn increased public demand for efficient vehicles and supported the eventually instituted CAFE system. Muscle cars and big sedans whithered away.
When fuel prices fell again we ended up with streets packed full of SUV's and a new age of muscle cars and large sedans and the erosion of the CAFE system. The demand for efficient vehicles was so low that some manufacturers were forced to sell small vehicle at losses just to push enough volume to meet the CAFE requirements. The US market value of small cars has stil not recovered. Some small cars sell for thousands less than it costs to build them.
The more recent increase in fuel prices has again pushed the market toward efficient vehicles, but nothing is to guarantee those prices will stay high. And if they fall, so will the demand for efficient cars will fall and the CAFE system will get poked full of loopholes to help the auto industry (jobs/tax revenue).
Besides the logic, it is obvious. I don't know why Lloyd is so suspicious other than his irrational hatred for auto manufacturers.
I wonder why small cars have to be "econ-boxes?" One major point of a smaller car is gas mileage, but maybe automakers should consider a better enginer for performance and options which can typically be found in larger cars. Maybe I am too idealistic with this, but if a small car had handling characteristics, and feel of a larger luxury car, why wouldn't someone want to drive it.
I absolutely agree that gas prices need to be higher...especially in the US. I see far more full size trucks and SUVs, as well as H2s than the likes of the Prius, Honda Fit, Chevy Aveo, etc. Most (if not all) of these people are driving by themselves to and from work and have absolutely no reason (other than status) to be driving those vehicles. I, for one, am willing to pay $5 a gallon for gas to see a change in society. After all, if you drive a fuel efficient car, the difference between $3.50 a gallon and $5 is negligible.
I think a large tax on gasoline would go a long way toward pushing fuel efficient vehicles and alternative transportation. The funds raised could than be used to improve roads and public transportation.