Raise taxes to boost fuel efficiency

Nov 11, 2009

The simplest way to get Americans to drive fuel-efficient cars, according to auto executives, is to sharply hike the gas tax. This assessment comes from the Reuters Autos Summits held in early November in Detroit.

While politically unpalatable, gasoline that costs at least $4 a gallon would have a far greater effect on American fuel usage than Washington’s $25 billion loan program meant to spark investment in new technologies, executives told the Reuters Summit.

Consumer demand for fuel-efficient cars like Toyota’s Prius and Ford’s Escape hybrids surged last summer as gasoline prices soared above $4 a gallon.

But with the pressure off, as the average U.S. retail gas price was $2.66 a gallon at the end of October, according to the benchmark Lundberg survey, Americans are once again buying fuel-hungry sport utility vehicles and other large cars.

“The U.S. allows the price of gasoline to go back and forth across this line where the consumers don’t care about fuel efficiency and where consumers do care about fuel efficiency,” Mike Jackson, chief executive of AutoNation Inc., the No. 1 U.S. auto retailer, told the Reuters Summit.

Gradually raising gas taxes to the point where fuel costs $4 to $5 at the pump will do more to stimulate demand in next-generation vehicles like GM’s forthcoming Chevy Volt plug-in hybrid than any other policy initiatives, including raising the national fuel efficiency standards know as CAFE, Jackson said.

Jerry York, a former GM board member and an adviser to billionaire investor Kirk Kerkorian, agreed.

“Unless gas is $3.50 or $4 a gallon, consumers are not going to want to buy those cars,” York told Reuters.