Green Autos A Victim of Low Gasoline Prices

An article in today's Financial Times discusses the latest data on automobile sales in the United States. The data for November from Autodata showed a 53% decline for hybrid car sales compared to an overall auto industry sales drop of 37%. On Monday, Autodata is scheduled to announce December auto sales figures and expectations are that the trend in falling hybrid sales will continue. The reason is simple - lower gasoline prices.

As gasoline prices were approaching the $4 a gallon in mark last summer, Edmunds.com, an online automotive service, experienced a peak in searches for hybrid vehicles on its web sites. Today, with average gasoline pump prices at $1.61 a gallon, the hybrid search rate is a third of its peak in May 2008.

When gasoline prices began falling this fall, some economists and politicians called for raising the federal gasoline tax to help raise income for the government and to help in the oil conservation effort. Lately, Tom Friedman of The New York Times wrote a column decrying the need for a huge boost in the gasoline price - about $2.58 a gallon if one does the math - to help push the green revolution. He does say that the hike in gasoline prices must be offset by a reduction in other taxes such as the payroll tax to overcome the regressive nature of sales taxes on lower income citizens.

Now, the FT article claims that Alan Mulally, Ford Motor's CEO, is also calling for a hike in gasoline taxes. Additionally, a report from a federal government Blue Ribbon Panel looking at the developing funding crisis for maintenance of this nation's highways and bridges calls for raising the gas tax to fund this spending.

The soon-to-arrive Obama administration is predisposed to a green revolution for energy and will consider this a top priority. With industry and politicians now getting on board the gasoline tax increase train, be prepared for paying higher gasoline pump prices before the end of 2009. How much higher? We don't know, but we suspect it will be a moderate increase, but tied to inflation or some other measure of economic health to ensure that the tax rises substantially in future years. Will there be a trade-off with reduced payroll taxes? We suspect one as part of a payroll tax holiday.

Will a higher gas tax help the hybrid vehicle market? Not much is our guess, but that market will be boosted by legislated demand - one more case of the federal government trying to pick winners and losers in the industrial world. That strategy seems to always be a mistake with the ethanol mandate as the most recent and costly economic mandate. Politicians never learn because their mantra is action rather than passivity.