An Argument Full of Gas

by Jeff Fleischer

(BuzzFlash, April 27, 2009)


The old cliché suggests that elephants never forget, but collective memory loss is coming to define the political party of the pachyderm logo. That’s particularly true when it comes to issues of taxation and the government’s role in the economy.

The automobile industry provides a perfect example. Ever since President Obama asked General Motors CEO Rick Wagoner to resign last month and required automakers to create more fuel-efficient cars in exchange for bailout money, some conservative pundits have reacted as if this intervention represented some radical new course.

“This is unheard of in American history,” the editorial board of the Washington Times claimed post-firing, “and sends an ominous signal to millions of shareholders for whom the auto maker is part of their retirement plans.”

Such an argument fits a recent pattern of amnesia for conservative financial interests. During tax protests, the same people tried to argue that Obama returning the top marginal tax rate to 39.6 percent would somehow mark the end of capitalism, even though that’s among the lowest rates since World War II (and significantly lower than the 50 percent it maintained under Ronald Reagan, the tax cutters’ false prophet). When Congress recently took up spending cuts on military pork such as the F-22, many Republicans in the chamber argued that cuts to such obsolete programs would cost too many jobs — just weeks after claiming stimulus spending to create jobs wouldn’t work.

Like it or not, government intervention in the auto industry is the rule, not the exception. And the tinkering the Obama Administration is currently doing is a direct result of the Bush Administration’s very visible hand in that marketplace.

After all, the sports-utility-vehicle craze, upon which the recent fortunes of the “Big Three” American auto companies rested, was heavily fueled by official Bush policy. As part of a 2003 spending bill pushed through by Bush and the Republican-controlled Congress, consumers who purchased an oversized behemoth — any vehicle weighing 6,000 pounds or more — were eligible for a tax credit of $75,000. That only increased an enormous SUV credit the administration had earlier codified into the tax code, and specific circumstances could increase the credit even more.

While this was allegedly a small-business incentive, Bush ensured the credit applied to any business owner, regardless of whether their choice of vehicle had any actual business purpose. When passing the irresponsible credit, Bush trumpeted his budget’s simultaneous inclusion of tax credits for hybrid vehicles. At $2,000, however, the hybrid credit was hardly in the same class as the SUV credit, and sales reflected that.

Manufacturers and consumers did what the government wanted so, just as intended, Bush’s policy led to a huge boost in the sales of SUVs. In other words, the ubiquitous symbol of suburban excess owes much of its popularity to direct government interference.

Not that the auto companies themselves were doe-eyed innocents in this regard. At a time when oil was already near peak production and the need to lessen dependency on foreign oil was apparent, the “Big Three” took advantage of a loophole in government fuel standards when they introduced SUVs during the 1990s. Violating the spirit of the fuel-efficiency rules, they created a line of passenger cars with the pollution capability and poor mileage of full-size trucks. By the year 2000, total fuel economy for America’s passenger vehicles was at its lowest level since 1980.

Of course, the laws of supply and demand eventually came into play. With lower fuel standards came a need for more gas, and prices that hovered about $1.50 per gallon when Bush came to power skyrocketed. Gas eventually crossed the $4-per-gallon threshold while the oil companies themselves took in both record revenue and record profits. (That’s not even mentioning the disastrous impact of all that extra fuel consumption on the environment).

In a recent The Washington Post column, George Will argued that Obama’s viability plan for the industry and its focus on improving fuel standards clashes with consumer desires. “The stunning shift in consumer preferences that should make the White House’s freshly minted auto experts feel vulnerable has been reported under headlines such as ‘Like a Rock: Hybrid Car Sales Plummet’…,” Will writes. “Absent $4 gasoline, customers, those nuisances with their insufferable preferences, do not want the vehicles the politicians want them to want, even with manufacturers now offering large rebates and other incentives.”

That leaves out some inconvenient truths. Hybrid sales may be down, but that’s partly because car sales are down across the board and hybrids remain expensive purchases. More telling is that SUV sales fell 53 percent, and large truck sales 39 percent, from the summer of 2007 to 2008. So the car companies and men such as Wagoner began to reap what their earlier shortsightedness sowed. While organizations such as OPEC are intentionally keeping gas prices low for fear of bankrupting the American economy, that’s only a temporary reprieve. If gas guzzlers make a comeback, prices will again have to spike and the cycle will repeat itself.

In a way, the SUV became one of the perfect symbols of the Bush years. Not only the era’s overconsumption or the administration’s willful ignoring of climate change, but also the role of the government in rewriting the rules to benefit particular business interests while disingenuously claiming to support a free market. Auto companies overtly conceded as much when they came to the government for billions of bailout money (much of it approved while Bush was still president).

To paraphrase Will, customers already proved they will buy the vehicles politicians want them to want. The difference now is the cars the politicians want are more responsible.

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