An idea to create real fuel cost certainty
DETROIT — A continuing topic of conversation at The Business of Plugging In electric vehicle conference has been fuel cost certainty. Without it, automakers who are investing precious resources into new electric vehicles may have a tough time selling them.
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What if the price of gasoline drops below $2 per gallon? Electric vehicles of all stripes no longer look very appealing. But if gasoline prices increase to $5, consumers will be stumbling over each other to get them. If you’re an automaker, not to mention a supplier, how do you plan how many to build? They might as well throw dice.
Bringing cost certainty to fuel prices would help the automakers make reasonable product plans.
So here’s an idea to do it:
My proposal would use a flexible tax to maintain fuel prices within a range that would be set by a government board.
As an example, gasoline is currently about $2.60 per gallon including state, federal and local taxes. If the board set a target price of $3.50, it could authorize an additional tax of 90 cents on each gallon.
Next summer, as the economy rebounds, let’s say the price of gasoline jumps to $4.25 per gallon. The board would use proceeds from previous low points in the market to pay to reduce the price back to the target of $3.50. The board would allow the price of gasoline to fluctuate in a range of 50 cents to allow for price competition, regional differences and day-to-day ups and downs of the fuel market.
The board could also raise its target price incrementally with plenty of advance notice. Right now, consumers find out that gasoline has climbed over $4 when it’s time to visit the corner gas station for a fillup. But this program would allow consumers to know when prices were going up and by how much.
In a way, the plan is similar to what many consumers do when they opt for the budget plan for their heat bill. Instead of bills that fluctuate between summer lows of $20 per month and $250 per month in the winter, they opt to pay a set amount each month, so they pay $100.
Without cost certainty, automakers and all of the others planning for the electrification of the vehicle are spending development money on something that the public might not want or need. Sure, General Motors is about to introduce the Chevrolet Volt extended-range electric vehicle with it’s promise of unprecedented combination of fuel economy and range, but if the price of gasoline drops to $1.50, GM could lose hundreds of millions of dollars on its investment.
In fact, David Cole, chairman of the Center for Automotive Research, agreed with the premise.
“We have to have reasonably stable fuel prices or we will have an ongoing disaster in the auto industry,” Cole said.
Who is going to buy a Volt, which will be more expensive than similar-size cars, if you can fill the tank of a regular one for $15?
In fact, John Lauckner, vice president of global program management for GM and the father of the Volt, said that even today’s fuel costs could cause problems for the Volt.
“At the cost of fuel today we’ve got a lot of work to do to make them cost competitive,” said Lauckner, speaking at the conference at the MotorCity Hotel and Conference Center. He said he would not call for a new gas tax.
Establishing this sort of program would take true leadership from Congress. Many people would complain that the government couldn’t be trusted to spend the money as intended.
For that reason alone, it’s unlikely to happen.
Date: October 21, 2009
Categories: Electric vehicles, General Motors, Technology, Uncategorized, Volt, green
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