DETROIT – Once upon a time if an auto dealer advocated raising gasoline taxes, he would be placed in a straight jacket, thrown into an insane asylum, and never allowed back in the showroom. How times have changed.
The head of AutoNation, America’s largest automotive retailer with 257 new car stores and 26,000 full-time employees in 16 states, believes raising taxes at the fuel pump is what the U.S. must do to encourage people to buy more fuel-efficient cars and that the public would back such a move.
“If you ask the question, ‘Would you support a higher gas tax to address our dependence upon imported oil?’ Our research says 60 percent of the American people would support it, but you need leadership. It is at that moment of truth where you try to get past what people saying what want to do, what they think should be done, and what they’re actually going to do means leadership and leadership means higher gas taxes,” said Chairman and Chief Executive Officer Mike J. Jackson.
Jackson believes that raising the gasoline tax by 10 cents a year for 10 years would provide the economic underpinning for new and expensive fuel-saving technologies to be placed in vehicles.
Jackson’s Fort Lauderdale, Florida, based AutoNation, Jackson is in touch wiht a lot of customers as this nationwide operation sells more than 600,000 vehicles a year and service more than six million vehicles.
During the last five years, he’s sensed a fundamental change with consumers. About seventy percent of customers coming into AutoNation’s doors are knowledgeable and interested in hybrid automobiles – cars with a smaller gasoline engine paired with a battery and electric motor. They want to help reduce America’s dependence upon foreign oil and/or are concerned about the environment.
However, most customers leave dealerships with conventional, gasoline-powered cars. The reason is simple, current hybrids are not very economical. “They are predisposed to buy hybrids, then things begin to change once they are told of engine premium for the technology,” Jackson observed, when speaking at the Society of Automotive Analysts 20th annual conference in Detroit in mid-January 2008. When customers ask, “‘What’s my payback for this technology? Oh, it’s 10 years? Show me something else.’ We have a huge percent who chose something else.”
Yet, the American people “have connected the dots,” the head of AutoNation opined.
“They see what the defense budget costs to keep oil flowing around the world,” Jackson said. “They see the types of conflicts that are in the world that are related to oil.
“Everybody is talking about fuel economy and I will give you that there is (about 5 percent) of the population that feels passionately, social responsible and has the economic means to express that passion… Now we have to deal with the 95 percent of the population that feels quite differently,” said Jackson.
For years, higher fuel taxes in Europe and Japan (and narrow roads) have contributed to the acceptance of small cars. Bringing the consumer choices of North Americans inline with their Western European and Japanese counterparts would provide the industry, society and the world with great economic and environmental benefits, the AutoNation chief declared.
For example, Western European and Japanese cars are very sophisticated, safe and high quality, Jackson noted. They are not “better” or have “magical” technology to achieve higher fuel economy. Rather, European and Japanese consumer is willing to pay for fuel economy because gasoline costs the equivalent of $6 to $8 U.S. per gallon out of which $4 are in taxes, versus $3.11 (with a 40 cent U.S. federal tax) at one of the most recent fuel price peaks in the United States.
“Because the consumer in Europe demands fuel efficiency and is willing to make the attribute tradeoff, their vehicles are very different cars are smaller, lighter,” he added. U.S. vehicles weigh on average 4,380 pounds versus 3,195 pounds for an average European car.
Jackson claimed that without a gasoline tax increase, even as the automakers install fuel efficient technologies to meet the new 35 mpg CAFE standards, the danger is that consumers will hang onto their larger, less fuel efficient vehicles longer because new cars will cost significantly more money. The result, more fuel will be consumed by consumers opting for used vehicles that meet their criteria in a “cheap fuel” environment rather than new cars that meet federal regulations.
Fuel Saving Technologies
The AutoNation executive offered his opinion on various fuel-saving technologies and which ones would offer the greatest impact within the next 10 years. The two most often mentioned today, hybrids and ethanol are at the bottom of his list.
Hybrids:
The current crop of hybrid vehicles does not make economic sense for most consumers because of the tradeoffs in vehicle size and the payback period. Additionally, current hybrid vehicle customers tend to want unique sheet metal – cars with an obvious look such as the Toyota Prius – rather than vehicles that look similar to their conventionally powered counterparts.
“Consumers buying hybrids have a strong sense of social responsibility and the economic means to express it (which is about five percent of new car buyers),” Jackson said. “What is going on in that customer’s mind? If you want to buy a hybrid and have distinctive sheet metal, what does one have to do with another? … It is a social statement, and it says to me, you don’t have a mass market concept.”
Ethanol:
For years, the automakers have offered alternative fuel vehicles, such as flexible fuel (or flex fuel) automobiles that can use either gasoline or E85 – a fuel that uses 15 percent gasoline and 85 percent ethanol. But there are a number of barriers in the way preventing consumers from running their vehicles on E85, not the least of which is the lack of fuel stations that carry it.
“No one here is putting E85 in their cars,” Jackson said. “Ninety-nine percent of ethanol is blended in the gasoline. How do you get consumers to put E85 into the vehicle? The consumer hasn’t even begun to understand that the range of their vehicles will be reduced if they switch over to E85… they will not like going to the gas station 25 percent of the time more often.”
The only way for E85 to be used by American consumers is if it is priced dramatically less than gasoline. However, even though the federal government requires oil companies to blend ethanol in with gasoline, they receive billions of dollars in subsidiaries, but that money doesn’t promote E85 fuel.
American import laws also slap a heavy import duty on ethanol that is manufactured in Brazil. Using sugar cane rather than corn, Brazil manufacturers ethanol far cheaper than in North America.
Jackson did say that General Motors announcement that it is teaming with a company that can make ethanol fuel for about $1 dollar a gallon, using non-grain materials as raw materials – including used tires, corn stalks, and recycled plastics – while reducing water usage from three to four gallons to one gallon, was “breathtaking” and could make E85 a viable fuel—if the technology works out.
He did see some hope with other techonologies.
Direct injection gasoline engines:
A technology that Ford says it will offer in its new Verve subcompact appears to be promising. “Direct injection gasoline engines are the fuel-efficient technology that on the near term and will be accepted by the consumer,” Jackson said.
Common on large diesel engines, direct injection refers to how the fuel is introduced directly into the combustion chamber above the pistons – instead of through a port. The result for the consumer is better fuel efficiency, more horsepower, and improved drivability. It is more expensive, however.
Diesel:
“I think the next technology that is going to be coming to the U.S. is diesel,” Jackson said. “In Europe they cleaned up diesel fuel 20 years ago. Here in the U.S. we finally got rid of high sulfur, dirty diesel fuel but we missed generations of diesel development technology… It gives 30 percent increase in fuel efficiency and it dramatically extends the range of a vehicle.
“For the average consumer, range is the issue. Range is what killed the first generation of electric cars. They don’t want to be stranded some place and sit for six to eight hours for a recharge.”
Diesel engines, however, can cost upwards of $3,000 more than a typical gasoline engine and the clean diesel fuel now costs more than gasoline. Although 50 percent of Western European new cars are powered by diesel engines, Jackson thinks the “take rate” in the U.S. will be far lower.
Plug-in hybrids:
While Jackson panned the conventional hybrids now available he’s in favor of plug-in hybrids. These vehicles are primarily powered by batteries while a small internal combustion engine is used to provide range extension. They can be plugged in to recharge overnight.
Although no manufacturer has a plug-in hybrid available for sale to the general public, in 2007 General Motors had announced that it is working on the Chevrolet Volt, a plug-in hybrid that could carry lithium ion batteries, and Toyota has said that its future generations of Prius hybrids may be offered as plug-ins in order to raise fuel economy standards.
“Now we are getting into vehicles that are real game changers in terms of reducing our dependence on foreign oil and something that can be embraced by the American consumer,” Jackson said about plug-in hybrids. “The idea that you can use an all-electric mode to commute back and forth to work is the beginning of the game changer.
“It’s probably the most exciting thing in automotive technology in 100 years. Expect to see within the next five years is an electric vehicle with a range extender, lithium ion batteries, and a range of 100 miles per gallon… These types of vehicles will be embraced by American consumers because the cost-to-benefit ratio will be so (dramatic) that people are going to be so enthralled that they don’t have to go to the gas station all the time, they just have to take it home and plug in.”
Hydrogen:
Hydrogen has been called the “fuel of the future” and like most people today, Jackson believes it always will be the “fuel of the future.” For years it’s been touted as a possible fuel source for internal combustion engine powered vehicle and to power fuel cells but there are still enormous problems connected with using hydrogen, not the least of which is the lack of a refueling infrastructure. It is not likely to make much of an impact with consumers within 10 years.
“Hydrogen is carrier of energy… It’s like a complicated battery,” Jackson said. “You can put it in a vehicle and burn it in an internal combustion engine, but you’ve lost the range by 60-70 percent. Ow! And, it’s got to be in a liquid state so you have to keep it at –423 degrees Fahrenheit.”
If the liquefied hydrogen warms up, it expands into a gas increasing pressure in the fuel tank. The likely result? Although Jackson joked the car would be “toast” after sitting the sun for three days, the hydrogen gas would be vented to the atmosphere to prevent the fuel tank from rupturing. The consumer would find far less fuel in the tank, if that happened. Hydrogen gas typically does not cause a “Hindenberg” style fire and explosion.
A technology created for the space age, fuel cells have been touted as an alternative power source for automobiles. Taking hydrogen atoms, the fuel cell uses anode and cathode membranes to strips the electrons away from the protons. The electrons are forced to travel in an external circuit, supplying electricity. At the end of the complex process, the hydrogen is combined with oxygen and produces water – in vapor or liquid form – as a waste process.
“They’ve made great progress with fuel cells. Instead of costing $2 million, they’re only $1 million,” Jackson said. “To create a hydrogen infrastructure to run a $1 million fuel cell… I just don’t see it.”
If federal policy makers genuinely want to change mass-market behavior, a gasoline tax increase, as advocated by Michigan Democratic Congressman John Dingell and others is the only way to go, the AutoNation executive said. Otherwise, only about five percent of consumers are passionate about fuel economy and are willing pay a price premium for advanced technology.
“Yet, the country has changed since the 1980s,” Jackson added. “We’re at war. We are sending billions of petrol dollars to the Middle East. Is that smart? People are more sophisticated today than the God-given American right to cheap petroleum.”
Related Items:
