President Obama last week announced an initiative to double the average fuel efficiency of vehicles to 55 miles per gallon by 2025.
He made this pledge during remarks in Washington, D.C., flanked by “leaders of the world’s largest auto companies,” as he said during his speech. I found it curious that there were no lenders on the dais with Obama and the manufacturers. As we can all attest, the overwhelming majority of cars purchased today are financed. Without banks, the automotive industry would be a fly on the back of the economy, instead of its backbone. The automotive industry accounted for 10% of this nation’s GDP as recently as 2008, according to Ford Motor Co. Chief Executive Alan Mullaly.
I think the government needs to get involved not just in establishing standards for the manufacturing of automobiles, but also in helping further the purchases of high-efficiency vehicles. And I have a few ideas as to how that involvement can take shape.
- Establish a government-sponsored enterprise, like Fannie Mae or Freddie Mac, to purchase auto loans made on vehicles that meet certain thresholds, such as a minimum miles-per-gallon standard. Fannie and Freddie were created to spur homeownership in the U.S., and they definitely accomplished their mission (some would argue they accomplished it too well).
- Make interest on auto loan payments tax deductible, if the vehicles are deemed to be high efficiency. Interest on mortgage loans was made tax deductible to spur homeownership.
- Guarantee loans made on high efficiency vehicles, similar to how the Small Business Administration guarantees loans to small businesses.
The federal government has already once involved itself in trying to help persuade consumers to exchange older, less efficient vehicles for cars and trucks that get better gas mileage. “Cash for Clunkers” was a boon for the auto industry. But it didn’t last long enough or go far enough. If the federal government really wants to be an agent for change, it has to hit consumers where it matters most: in their wallets.
President Obama can talk about the money that consumers can save by buying less gas, but that money comes in small amounts over years and years of driving. He needs to show consumers he means business by giving them more of a financial incentive to change their behavior. If he wants people to follow his lead, he needs to put his money where his mouth is.
I think it would work a lot faster if we just put a tax of $20 a barrell on oil. Get some help filling in the deficit and provide an incentive to drive more fuel efficient cars. Also move us to be less dependant on foreign countries that for the most part don’t like us.
Good post!
Part of that tax would have to be diverted to Highway Trust funds for road repairs. and it will need to be coordinated with individual state taxes on fuel. Higher MPG does not reduce wear and tear on the roads.
These are the type of entitlements and government intervention in market activities that were central to the debt ceiling negotiations and that we as citizens need to stop always looking for, especially if we are upset with the size of the federal budget deficit, as these programs cost money.
The tax deduction of mortgage interest has been a fiscal policy used to encourage home ownership, which typically an appreciating asset. Adding the additional expense for tax deductions on auto loan interest only serves to subsidize vehicle prices, passing tax dollars into the coffers of auto manufacturers and lenders (or the ABS investors). Additionally, the mortgage interest deduction may being going away in the future, so this is going to be tougher to pass through.