For the automobile industry, 2015 was a banner year. The latest data suggest new-vehicle sales of all brands in the United States probably exceeded 17.5 million, which would break the record set in 2000. That’s a tribute to the private sector’s hard work and innovation — but the U.S. auto boom is also due to government aid, whether in the form of the taxpayer-funded bailout and restructuring of General Motors and Chrysler that began eight years ago or the low interest rates engineered by the Federal Reserve for roughly the same length of time.
In an important sense, too, the industry’s renaissance has not gone according to plan. Aid to Detroit, including both the bailout and a loan-guarantee program signed into law by President George W. Bush, was supposed to spur production of small, fuel-efficient vehicles in U.S. factories. That hasn’t panned out; not only GM, Chrysler and Ford but also U.S.-based Japanese and German automakers are shifting assembly of these vehicles from the United States to lower-wage plants in Mexico. Quite simply, fewer small cars are profitable to produce in the United States because U.S. consumer demand is shifting once again to larger vehicles. Of the 20 hottest-selling vehicles in December, 12 were pickup trucks, SUVs or crossovers.
While today’s pickups and SUVs use less fuel than their predecessor models, in part because of tougher federal regulations, they still burn more gas than passenger cars. As a result, the United States is starting to reverse some of the fuel-economy gains it achieved in the wake of the Great Recession. The average fuel economy of cars sold in November was 25.1 miles per gallon — better than the 20.8 mpg recorded in 2008 but down from the record 25.8 mpg set in August 2014.
The fundamental cause of these recent trends is the collapse in gasoline prices, brought on by a collapse in global crude-oil prices — neither of which was foreseen by the authors of Washington’s policies for the automotive sector eight years ago. While certainly a boon to the economy, cheap gas thwarts U.S. environmental and energy independence goals. Yet those objectives will always remain hostage to the cyclical vagaries of gas prices, unless and until the government finds more effective ways to counter them.
The simplest, of course, would be to increase the 18.4-cent federal excise tax on a gallon of gasoline, which hasn’t gone up since 1993 — that is, it’s been decreasing for the past 23 years in real terms. At the very least, Congress could allow the tax to rise with inflation each year. Recent experience suggests there is only so much fuel-economy progress we can achieve through the blunt force of Corporate Average Fuel Economy regulations and subsidized small-car production. It is time to see what would happen if government gave consumers and producers a clear, strong financial incentive, and stuck to it.
Editorial by The Washington Post
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