Emissions: New Salt in an Old Wound

January 26th, 2009
"I traded this for The Beast?"

"I traded this for The Beast?"

Today President Obama signaled that fuel efficiency, global warming and energy independence were more important than the parochial interests of the auto industry.

He directed the Environmental Protection Agency to reconsider the Bush administration’s 2007 denial of California’s (and 13 other states’) request to set its own emissions and fuel efficiency standards. If other states join California, and some 17 are leaning that way, we’re talking about 40% of the population.

Obama also directed the Department of Transportation to enact rules to get automakers to a standard of 35 mpg by 2020. The current level is 27.5 mpg. Said Obama, “That 40 percent increase in fuel efficiency for our cars and trucks could save over 2 million barrels of oil every day: nearly the amount of oil that we import from the Persian Gulf.”

As in so many areas, the industry should have seen this one coming. Beyond energy independence, Mr. Obama wants to “spark the innovation needed to ensure that our auto industry keeps pace with competitors around the world.” So, while he sticks it to ‘em with much tougher standards, he offers something of an olive branch:

As we move forward, we will fully take into account the unique challenges facing the American auto industry and the taxpayer dollars that now support it. And let me be clear: Our goal is not to further burden an already struggling industry; it is to help America’s automakers prepare for the future.

Many in the industry have already been wailing that such regulations will cost them $100 billion to implement. According to Fortune, meeting the new standard will require “new smaller platforms, new high-technology engines, and, inevitably, higher prices for consumers. Forcing automakers to design a second fleet of cars for California could greatly inflate the cost.”

Well, we’ve heard this argument for years and, as the president says, “the days of Washington dragging its heels are over.” Detroit has recently shown that it can and will produce the kinds of fuel-efficient and desirable cars the public wants and needs. And, if it can’t immediately produce them for all 50 states, it can do it in a two-tiered effort.

The Obama administration, according to our friends at TheCarConnection, may well create only two sets of regulations—one for California and those states who choose to go along and one for the rest of the U.S.—to avoid the crazy quilt situation that could result if each state went its own way.

One wonders how much the automakers have spent in their legal battles over the years to postpone the inevitable. And we bet that the feds will give them future help in implementing these tougher standards.

We’d like your opinion on any of the following:

  • Will people buy the new fuel-efficent cars, or does it all depend on the price of gas?
  • Is this the smart way to encourage lower gas consumption? What about a $2/gal gas tax?
  • Will the California standard end up being the U.S. standard?

—jgoods

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  1. | #1

    Much as I hate to say it, I think the best way to encourage lower gas consumption is to make the end user pay more money to acquire gas. Europe has *much* higher taxes on gasoline, and Europeans tend to buy and drive much more fuel-efficient cars. Ironic that some of those fuel-efficient European cars are manufactured by the Big Three, but can’t be bought here in the States.

  2. tgriffith
    | #2

    I HATE to agree with you Hollerin, but higher gas taxes are the most efficient way to encourage people to use less gas. I don’t know if jgoods’ suggestion of 2 bucks a gallon would fly though…

  3. jgoods
    | #3

    A lot of people, I think, will agree with you guys, including the LA Times in an editorial today (Jan. 27). It says, in part:

    “Yet one problem with a purely regulatory approach is that it burdens consumers without providing them any alternatives. Raising gas taxes, by contrast, creates a revenue stream that could be used to improve public transit and freight rail networks, accomplishing a host of beneficial public goals at the same time: easing traffic, reducing pollutants, providing cheaper alternatives to driving and combating sprawl. What’s more, it would ensure a market for Detroit’s cleaner cars — consumers would be willing to pay a few thousand dollars more for a hybrid car if gas were heavily taxed and the higher up-front cost could be recovered over the long term. Finally, because the existing gas tax isn’t indexed to inflation, it’s no longer high enough to maintain the country’s existing network of roads and bridges, let alone build a 21st century transportation system.”

  4. Panayoti
    | #4

    I’m usually reluctant to respond to discussions of this ilk, but am compelled to do so in light of O’s pronouncement about state’s rights. Oh, I’m a registered Democrat who believes in free market enterprise. Now let’s use some common sense. Prior to the credit and gas crises, what did most people love to buy?? Big, gas guzzling cars, trucks and SUVs. That was their preference. They loved these cars,trucks and SUVs. No one ever complained about the Big 3 not giving the public what they wanted. Did everyone like the mileage numbers and quality of these vehicles? No, but those vehicles were what they wanted and pretty soon, Toyota, Nissan, Honda and the other foreign brands started saying “me too”! So pretty soon everyone was making these vehicles. It didn’t take long for the foreigners to outdo their domestic counterparts and soon they were grabbing a larger and larger share of this very lucrative market. RAV4, Highlander, Rogue, Murano, Ridgeline, Sportage, Tuscon, X5, MLK, Land Rover, Hummer, etc. were selling like hotcakes. Even the Tree Huggers were buying as their affluence permitted them to pay top buck for these rather over priced vehicles. The economy was booming and everybody felt “rich”. What could be better??

    Whoops! Gas goes to $4, fueled by speculator’s greed and the situation is exacerbated by the credit crunch and incompetence of the even greedier Wall Street guys. Now all we hear is talk about hybrids and our reliance on Mideast Oil and how Detroit, Wall Street and Washington failed us and how stupid they all were to allow all this to happen. Hell, no one said a thing about this before the gas and credit thing exploded. Now, because no one can qualify for a home, or a car loan, or find a new job we are grasping for easy and fast solutions when, deep inside, we all know that this mess we are in is going to take 2 years to be mitigated, not solved
    mind you. In full panic mode, O and others on his side of the aisle, are coming up with reactionary solutions that simply can’t work in this kind of environment, and that is the reason for my rather long view of the situation.

    I’d like to think that most of us rely on common sense for the simplest solution to very complicated problems. I think we can all agree that no simple solution can be formulated in a climate of sheer panic. We are not very rational in irrational times. We tend to join the crowd and scream at the top of our lungs for “a” solution. So, does imposing harsher limits on mileage make sense in this environment? I don’t think so. We don’t know if the Big 3 as well as the foreigners will be able to survive this mess, depending on how long it lasts. Does extending the laws of California on the rest of the nation “force” carmakers to make us more fuel efficient cars?? If I were a car maker, I would say “screw California, I’ll make cars for the rest of the nation so that I have a chance to survive and give the people what they have always wanted, ie, gas guzzling cars, trucks, and SUVs”. Now we know that no one is buying hybrids either and they are sitting on car lots for months because of their high cost. Most people don’t buy sardine cans because of their higher fuel efficiency numbers. They are sardine cans and don’t work for a majority of people’s life styles. Yet O wants to change the way we do things and to have the government dictate what it is we should be driving. We all knew this while he was running and we now see it as part of proposed official government policy. Posters above talked about a gas tax, but not over $2/gal. Hell that takes us back to $4, a price point that “broke” commerce in this country and damn near killed consumer spending!! We are talking like crazy men. Get a grip!! What about the electric car?? Another joke. $40K for a Volt?? $100K for a Tesla??
    Please, please, give me a break!! I said early on that we always look for simple solutions to complex problems and I think that we are seeing this on this board and others as well. “This ain’t easy!!”…….. and it’s going to get WORSE!! If you think there is pain now, wait till all the job cuts we saw yesterday work into the economy and the others who will announce cuts later work their way through. Government is shoveling trillions, yes, with a T at the problem and O wants to increase that cost even more by forcing those car makers to spend even more on research and development to create cars that Americans don’t, or won’t want to buy.

    Look guys, I don’t have an answer, but I know what I’m hearing simply will not work in the current environment. Yes, we need better mileage but not at the expense of buying an even more expensive hybrid, electric, solar, or pedal-powered sardine can. Contractors, farmers, freight companies, delivery vehicles need trucks. Families don’t fit well in Spectras, Mazda 3s, Accents, Cobalts, Civics, Versas, etc. Gas taxes tax the poor as mentioned above. Electrics and gas powered cars don’t have distribution systems and limited mileage. How long can the government keep giving tax incentives to purchase these kinds of vehicles. Look at what we created with Ethanol subsidies. Hell, veal chops in my town are $12/lb. I can’t afford to go to the store anymore. Oh, I’m so confused and frustrated!! Finally, as to the state’s rights thing, we fought a Civil War in this country, and you see what it got us. Millions dead, a “united” nation of diverse peoples, more centralized government,much less individualism, less freedom, and a creeping socialistic solution to almost all our problems. God, do I love this country!

  5. jgoods
    | #5

    @Panayoti
    Panayoti, thanks for your thoughtful and lengthy comment. Your fears may indeed be well founded, but let me put out a couple of other thoughts.

    The Big Three (and later Toyota et al.) surely did give America what it wanted in gas guzzlers, but they also built the demand. This is a very old marketing pattern, and it’s the way much big business is done in the USA. Look at television: most people deplore the crap that networks and cable serve up and blame them for serving the lowest common denominator. The industry says that is what people want, and the Nielsen numbers bear them out.

    This kind of chicken-egg argument is silly, because the industry has no inducement or incentive to change its offerings while people still tune in. They deserve each other. What’s socially desirable has nothing to do with it. If the price of TV sets shot up dramatically, like the price of gas, then you might see some behavior change.

    The car biz is facing some really daunting challenges, as we all know. No, you cannot force hybrids and high-cost electrics on people or change the basic ways they use transport, but you can modify their behaviors. It simply no longer makes sense to produce the kinds of cars and trucks that sold so well in 2006. The industry’s challenge is to develop new vehicles that people want to buy that will also get us off the energy merry-go-round.

    I think you get there with a carrot and stick approach: Put those tough mileage/emission standards in place and relatively soon make one standard for all states. Find and deliver stimulus funds and incentives to help the industry do the R&D that will get the new technologies (plural) into affordable cars within, say, two years. Some monies could even go for public education.

    Conversion is not impossible, but buyers, sellers and producers of cars need to recognize that there is real urgency to the task, real economic peril if we don’t get it done soon. The gas tax is not only a way to fund this effort but a proven way to get drivers to pay attention. I don’t think Obama is panicking in suggesting the emissions changes; he’s trying to give people a kick in the ass.

    You’re very right to say there’s no simple solution. But the first effort of government—and the industry—should be to get Americans to at least entertain the notion of change in the way they use and think about their cars.

  6. Panayoti
    | #6

    @jgoods

    I certainly agree with the logic of Detroit having no incentive to do what is in the national interest. As a former Economics teacher I am also familiar with creating demand and I certainly have no problem with your premise of using a carrot and stick approach with the automakers to achieve the national interest. That is very solid thinking based on age old economic tenets. I will even agree that using the carrot could be a fruitful exercise for product change for the future. That is about all that I agree with, however.

    You seem to be espousing the stick on the victim already in the hospital bed, on life support. Will the government IVs and antibiotics get the patients out of the bed sometime soon?? Even if they do, the government will have to pay for “rehab” of the patients, something that many times takes more time and money than the sickness itself. You say the Feds have to “find and deliver” stimulus funds and incentives to get the patients on their feet again. Now that assumes that the patients get well and get back to work. A question for you jgoods, “where does the government “find” that money”??. Hell we’ve already spend 2T on the banks and their parasites and you want us to “find” more money?? We, jgoods, you and me, will once again be footing the bill for your proposed venture. Why?? You say to produce R&D and new technologies to produce “affordable” cars and…………IN TWO YEARS. Hahahaha!! Please rethink this! This isn’t carrot at all, it’s all stick and is impossible to do IN THIS ENVIRONMENT. That was my entire point above.

    O is having his 1.2 T package voted on today in the House for something that every economist, political pundit and local party hack knows will not and cannot impact the economy for two full years. And they call this a stimulus package?? When and what will it stimulate?? Oh, by the way, none of it is targeted to the automakers. Rumor has it that unless the Big 3 can show “progress” in their vision for viability that they will not get their IVs and antibiotics in March. Yet you want the government to write yet another check for the guys that may not make it out of the bed. You say this should be done in two years. Hell it takes almost two years to turn around an oil tanker in the Persian Gulf!! Seriously, I believe that even if we drank to your Kool Aid approach, inertia simply cannot be overcome in such a short time span.

    I also take a diametrically different view of your point to urgency. If you agree with me on this point, perhaps we might reach a compromise in the best approach for the problem that faces us now. O has said repeatedly that the stimulus package must be enacted NOW. I ask why?? As mentioned above, the monies for the “stimulus” won’t be felt for another 2 years. What is the urgency then of acting irrationally now to get an effect two years later?? I don’t get it, much like your “real urgency” above. Look, jgoods, we’ve not only gotten our asses kicked, we’ve been spit on, abused, violated and had our freedom pretty much limited by the guy before O, but yet you suggest that O does more of the same. For God’s sake man, why??? Please give this some more thought.

    Finally to your last point of entertaining the notion of change. I realize that change was anathema to my old parents and grandparents. I often poked fun of them for their point of view, yet over the years even they came to see that TV, CDs, cars, supermarkets, etc were better than what they had in their old homeland. My point here being that it took them almost 60 years to make that admission………not two years. I, too will ask for your patience with my diatribe until such time as I slowly adapt to what I perceive as just plain “crazy talk”. I hope that you take my remarks as “contrarian” and in no way demeaning to you personally. It is always best when people have the opportunity to debate with individuals with a different point of view. I hope that you feel the same.

  7. | #7

    while I applaud the idea – energy indepedence, imposing arbitrary regualations on industries is generally a bad idea. Personally a “use” tax of $3.00 a gallon would do more to curb gas consumption and encourage conservation. Take that $3.00 a gallon and create a series of federally funded research grants for electric cars, better diesel distribution etc. That would be a more “market oriented” means of achieving the same goal.

  8. jgoods
    | #8

    @Panayoti
    A new post may interest you. See http://www.cargurus.com/blog/2009/02/03/what-a-sensible-new-gas-tax-proposal/. As you can see, I took your comments seriously. Thanks!

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