Auto Executives Believe Raising Gas Tax Best Way to Increase Fuel Economy

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Currently, fuel economy in the U.S. is regulated by the government’s Corporate Average Fuel Economy (CAFE) mandates. By 2016, the standard will be 35.5 mpg, but according to auto executives, there’s a better way to improve the fuel economy of vehicles sold in North America: Raise the gas tax.

“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,” said Mike Jackson, CEO of AutoNation, the largest automotive retail group in the U.S.

Proponents for a gas tax point to the sharp increase in gas prices from last summer when gas was above $4 a gallon and people were scrambling to get out of their SUVs and into more fuel-efficient cars. The demand for hybrids (like Ford’s Escape Hybrid and Toyota’s Prius) greatly increased during the same time period. Now, with gas at an average of $2.66 a gallon across the country, a Lundberg survey indicates Americans are reverting to their large vehicle buying habits.

To rectify this, Jackson suggests steadily increasing the gas tax until a gallon costs between $4 and $5 per gallon -- still far less than the price of gas in Europe. Jerry York, a former GM board member, agreed with Jackson’s point. Both agree that the key is to gradually increase the fuel tax to slowly increase fuel prices, prompting people to move to smaller vehicles, and allowing automakers to sell fuel-efficient vehicles in greater (and sustainable) volumes.

“What you have to do is to it in a manner that is slow enough and predictable enough that vehicle selection and choices by people over the cycle can be made in a logical way,” said Tim Leuliette, CEO of parts supplier Dura Automotive.

In Europe, more than half of the cars sold are diesels, which are typically stingier on fuel than gasoline-powered cars. In the U.S, there are few diesel engines offered outside of trucks. Most European cars are smaller, both dimensionally and in engine size, than the cars Americans buy. We have a plethora of V-8 powered vehicles here, as opposed to an incredible number of small displacement four-cylinders seen abroad.

“The cars that America wants are typically cars that only work in America because of our fuel prices,” said Leuliette. “What we’ve created in the United States is an artificial environment.”

Source: Forbes

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Those high gas prices will affect more than just fuel economy. how about what it will do for the rest of the economy. We know from past experience what high gas prices do to the cost of goods and services.

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