Chrysler President Thomas Lasorda
Chrysler president Tom Lasorda talks with interviewer at 2009 North American International Auto Show in Detroit. Behind them is new Dodge Circuit all-electric sports car.

Like It or Not, Detroit Needs $3 Gasoline

There's a tried and true way to re-invigorate America's auto industry and economy

By Bill Moore

Carmakers are loath to bring it up, but $3 a gallon gasoline is just want Detroit needs most right now.

Having just attended the 2009 North American International Auto Show in Detroit and having spoken with numerous senior automotive executives and engineers, what I came away with is that America needs -- whether we like it or not -- higher prices at the pump. Jobs and a rebounding economy wouldn't hurt either--and there is a simple, tried and true way we can do both that doesn't involve a gasoline tax.

It is now commonly acknowledged by most observers inside the industry and other knowledgeable analysts and reporters that the future of the auto industry will hold increased reliance on electrons and less reliance on hydrocarbons to propel our personal vehicles. The most important announcements coming out of Detroit this week were electric car-oriented--from GM's announcement that it was back in the electric vehicle (EV) battery manufacturing business, to Chrysler's rolling out another five EV models from its ENVI electric-drive power train unit, to Ford announcing a trio of production electric vehicles to debut starting in 2010.

Some of the most exciting vehicles of the show were plug-ins hybrids and all-electric vehicles, starting with the sleek, stylish Cadillac Converj. Toyota pulled the wraps off its 2010 redesign of the current 'gold standard' in gasoline-electric hybrid passenger cars, the Prius. Honda introduced its "twenty-something" -- as in $20,000-something -- Insight sedan. These last two go on sale this spring, as does the new Lexus 250h Hybrid and Ford's highly acclaimed Fusion/Milan Hybrids, which offer the first serious competition to Japanese dominance in this segment.

Just around the corner in 2010 is the launch of the Chevy Volt and an as-yet-unidentified Chrysler ENVI electric car, followed in 2011 by a Ford Global C-platform-based electric car. China's BYD is also planning its foray into North American the same year with its electric cars, encouraged by Omaha-based investment powerhouse Berkshire Hathaway.

While this is all exciting news for electric car advocates and proponents of energy independence, successfully bringing these vehicles to market is heavily dependent on consumer willingness -- and ability -- to buy or lease these petroleum-free-or-nearly-so vehicles. But with oil prices at pre-Iraq invasion levels and gasoline prices back to where they were prior to 9/11, there just isn't any reason from a purely financial perspective to even consider hybrids like the Prius, the Insight, or the Fusion.

For starters, there are no federal tax credits available for either Toyota or Honda hybrids. Additionally, as federal tax law is currently written, even if credits were available -- as they still are for GM and Ford products -- taxpayers who fall into the Alternative Minimum Tax [AMT] bracket find they can't apply the credit anyway.

But beyond the intrinsic unfairness of the AMT remains the challenge of increasingly volatile energy prices. In a six-month period, oil prices have swung from a high of $147 a barrel to $35. Extremes like this make long-term strategic planning impossible. Whether you operate an airline, a car company or manufacture industrial terrazzo flooring, such wild swings are crippling. Worse, it strangles investments in greener energy and transportation technologies, including consumer purchases of more efficient automobiles.

It has long been proposed that a global floor be set for a barrel of petroleum with prices suggested at between $40-$50. This assures a reasonable profit for oil and gas producers, allowing them to continue to invest in exploration and new technologies like carbon capture and sequestration. It also encourages investment in green energy projects.

Of course, supply and demand would continue to work, allowing prices to rise well above this floor. Saudi King Abdullah has said he would be happy with oil at $75 a barrel, which should translate into gasoline prices at around $3 or so a gallon, the apparent threshold at which consumers start to take a serious interest in hybrids and their plug-in successors.

However, letting hundreds of billions of dollars continue to hemorrhage out of the American economy only drives further unemployment at an estimated rate of 37,000 jobs per $1 billion in oil imports, according to the Institute for the Analysis of Global Security. So, rather than give King Abdullah or Vladimir Putin or Hugo Chavez their full $75 a barrel, the imposition of a $10 import tariff on all petroleum and refined gasoline would generate around $120 million a day for federal coffers, funds that should then be directed to rebuilding America's crumbling infrastructure and stimulating a green energy revolution. That's $43.8 billion in revenue annually--a good start toward ending the nation's oil addiction. Multiply that by seven for the economic impact of that much money circulating through a reviving economy and you're talking about nearly one-third of a trillion dollars annually in economic activity. King Abdullah still gets $65 a barrel -- $25 above the global floor price -- and Americans find both the reason and the wherewithal to buy that new 50 mpg Prius, Insight or Fusion today, and exciting 100 mpg plug-ins like the Chevy Volt and Chrysler 200C EV tomorrow.

Times Article Viewed: 7014
Published: 14-Jan-2009


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