Friday, March 27, 2009

How To Get An Entire Industry To Change Its Tune On Taxes

But the American auto industry, under pressure, has invested heavily in the small-car and hybrid market. So it should probably not be a surprise that auto industry leaders like Alan Mulally of Ford have called for higher gas taxes, an idea Detroit once abhorred.
US automakers got creamed by the media, politicians, and the public last year when gas prices soared to $4 a gallon. Detroit brought it on themselves by not making high mpg vehicles, the saying went. Problem is, besides the fact that mpg had little to do with Detroit's problems, after being "under pressure" to build countless more small, fuel efficient cars, no one is buying them now.

Whereas last summer dealers couldn't keep a Prius on the lot for two days, now they're sitting for an average of 80 days. Not only that, but even though hybrids are always more expensive than their gas powered equivalent, carmakers make zero profit on them.

So why are US automakers pumping them out like crazy? Because the government made them. All that bailout money comes with strings attached. Not to mention the PR motivation brought on by the political grandstanding of last year. So now Detroit is on a quest to be the hybrid capitol of the world, just in time for gas prices to fall under $2 and decimate the artificial stimulus for the consumer to buy them.

Which is where the tax policy lesson comes in.

At the government's urging, Detroit makes tons of expensive cars no one wants to buy. The loss of consumer demand is blamed on low(er) gas prices. Detroit suddenly changes its tune on raising the gas tax.

So after using tax payer money to bail out car companies, we now get to pay higher prices for bail out the car companies.

Class dismissed.


Frank Staheli said...

You nailed it. It all comes down to prostitution at the feet of government. The most enlightening book on this subject that I have read in a LONG time is "New Deal or Raw Deal?" by Burton Folsom. One of the things that is hardly talked about with regard to the New Deal is how FDR used his programs to grant favor or scorn on his friends (butt kissers) or his enemies. That "legacy" alone is reason enough to heap mountains of reproach on Franklin D. Roosevelt.

We're still paying for it, and the car companies are just the latest example of how.

Jamie said...
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