Ford Supporting a US Gas Tax or Creating a Smoke Screen to Dump CAFE Standards?
Jay Parkhill August 9th, 2007
Ford Motor Company CEO Alan Mullaly has opined that US CAFE standards are preventing car companies from addressing global warming and energy security concerns. Mullaly apparently hedged when asked straight-on if he supported a European-style gas tax that could cause gasoline prices to rise dramatically, but it sounds like that’s what he meant.
“I’ve never seen a market distorting policy like CAFE,” Mulally said.
Mullaly goes on to say that CAFE forces carmakers to produce small cars in order to meet the regulations, but consumers want big ones. What this really seems to mean is that Mullaly thinks gas prices are too low, so there is not enough incentive to get people out of big, full-inefficient cars. Replacing CAFE with a gas tax could make pump prices rise, which would make people think harder about how much of their paycheck they want to hand over at the gas station. He offered Europe’s high (and highly taxed) gas prices as a leading factor in the relatively smaller car sizes in Europe.
It is an interesting argument: carmakers want to do the “right thing” by the enviroment, but consumers won’t let them. I suspect Mullaly is at least partially correct. Higher fuel costs might help swing the balance toward smaller cars.
At the same time, Mullaly’s reasoning falls well short of solid. The success of the Prius belies the argument that consumers just aren’t interested in efficiency. Maybe the small cars Ford makes just aren’t sexy enough. Europe is also so different from the US that it’s tough to make an apples-to-apples comparison. Are high fuel costs the main driver there or do Europe’s narrow streets have something to do with it as well?
More to the point, if Mullaly is saying CAFE doesn’t work because low gas prices cause a mismatch between consumer demand and carmaker requirements, wouldn’t the gas tax help that problem? Do we still need to scrap CAFE as well?