How to Save Detroit Automakers From Ourselves
There is concern that the Detroit bailout (which is, in part, requiring the automakers to devote resources towards developing more efficient cars) could backfire. In a couple of years if gas prices have remained relatively low and the economy recovers, high SUV demand from the public could very well return. However, since Detroit is being forced to redirect its focus away from SUVs, it could once again be producing cars that the public does not desire.
The most obvious way to avoid this situation is to set a higher price floor for gas prices so that demand for bigger cars is permanently softened.
DotEarth takes a look at this issue, noting that a new report co-authored by John D. Graham, a former Bush administration official, argues that a series of incentives could actually help accomplish this goal:
1. Re-Offer Income Tax Credits
In 2005 Congress authorized generous income tax credits ($1,000 to $3,500 per vehicle) for consumers who purchased new fuel-efficient vehicles with hybrid and clean-diesel engines. These credits are scheduled to expire soon. Congress should consider reoffering these credits. Congress has recently offered large tax credits (up to $7,500 per vehicle) for plug-in hybrids and electric cars, but these credits will have little practical effect until engineers accomplish breakthroughs in battery technology, and recharging stations are built throughout the country.
2. Enact “Feebates”
A more promising approach would be a new “feebate” system that offers a rebate to consumers who purchase green vehicles and extracts a fee from consumers who purchase fuel-hungry vehicles. In order to protect the taxpayer, the formula for rebates and fees can be set to ensure revenue neutrality (i.e., no net increase in taxation). If policy makers make no adjustment for vehicle size or weight, the smallest, most fuel-efficient vehicles will be favored. But an adjustment for size and weight will better protect safety and align the tax credits with the federal government’s size-based system for regulating the mileage of new cars and SUVs. Some parents with large families and some small businesses need a large passenger vehicle. Tax policy should encourage them to purchase vehicles that achieve above-average fuel economy in their preferred size class….
3. Expand Non-Monetary Rewards
Consumers will respond to non-monetary as well as monetary signals, but some states and localities are actually removing non-monetary incentives to purchase green vehicles. In some regions of the country, vehicles with hybrid engines are permitted on HOV lanes in urban areas, even if the vehicle has only one occupant. This practice should be extended rather than curbed. If this policy creates too much congestion on HOV lanes (as has been suggested in Northern Virginia), the proper solution is not to eliminate the privilege but to focus it on a more limited class of vehicles that achieve the highest fuel economy within size or weight class.
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