Bingaman: Buyers Need Incentives to Go Green
September sales figures for new cars have confirmed what many of us feared; auto sales have returned to the sluggish pace that we saw earlier in the year, and manufacturers are seeing significant losses in sales compared to last year. This unfortunate news reinforces the view that while Cash for Clunkers was a short-term lifeline for U.S. auto dealers and manufacturers, we need better long-term vehicle incentives if we are to rebuild an internationally competitive auto industry in this country.
[IMGCAP(1)]The basic truth we have to face is that, in every major sector of our economy, we are in a clean energy technology race with the rest of the world. The way to regain world leadership in the automotive sector is to build both our manufacturing capacity and our home market for the vehicles of the future, which will have to be convenient, affordable and highly energy-efficient.
Congress in 2007, and President Barack Obama earlier this year, took some historic steps to increase energy efficiency in our transportation sector by raising Corporate Average Fuel Economy standards for the first time in 30 years. That made sense when it came to improving our energy independence and taking action to mitigate global climate change, but it also made sense in terms of boosting our national economic competitiveness. It’s no coincidence that the most technologically advanced fuel-efficient cars are now being developed and manufactured in the countries with the highest fuel-efficiency standards. As American fuel performance standards stagnated over the past two decades, so did our manufacturing prowess in these crucial technologies. Our new standards will help us to close the distance with our competition in the Far East and Europe, but regaining the lead will take more than that. To make higher standards in the United States pay off for everyone — consumers, manufacturers and dealers — we need to make the economic benefit to consumers of better fuel efficiency more apparent in the showroom as they consider what car or truck to buy.
You might think that our recent experience with $4 per gallon gasoline would be enough in that regard, but it’s not. Study after study has shown that consumers have great difficulty taking the future price of fuel into account when they buy a new car or truck. Manufacturers know from experience that because of this difficulty, consumers largely don’t factor fuel prices into their vehicle-purchasing decisions. This leads to two real problems. First, consumers are dismayed to find themselves owning vehicles whose cost at the pump is much higher than they imagined. Second, manufacturers are reluctant to add fuel-saving technologies to cars. Adding those technologies has a cost, and if consumers don’t appreciate the value being added by the technology, they won’t pay for it. Indeed, several manufacturers of imports today simply factor the cost of the legal penalties of CAFE noncompliance into the sticker price of their vehicles because they believe that this would appear cheaper to the consumer than actually offering a better, more fuel-efficient car. This is a market failure — we are not putting value on the very innovations that would save consumers dollars at the pump and help our manufacturers keep pace in the global race to more efficient vehicles.
We do know that rebates get consumers’ attention. Cash for Clunkers showed that. So I have proposed, with both Republican and Democratic colleagues, the Efficient Vehicle Leadership Act (S. 1620) — a new incentive that will reward consumers who buy a car or truck with better gas mileage than the average fuel economy required for cars and trucks of similar size. Motorists who buy models that exceed the efficiency standard for their car or truck’s size will receive a “fuel performance rebate— tied to the amount of fuel savings that their car or truck will deliver. They will be able to claim their rebate on their tax return or have it paid instantly by a participating dealer, whichever the buyer prefers. The rebate might range from several hundred to several thousand dollars, depending on the vehicle’s fuel economy relative to other models of the same size. Conversely, for inefficient, fuel-guzzling vehicles, manufacturers will be assessed a fuel-guzzling fee per vehicle to pay for the program so that it is budget-neutral to U.S. taxpayers.
A prominently posted fuel performance rebate that the customer can see on each vehicle, and can get paid at the time that he buys a vehicle, overcomes the information gap that consumers face on fuel efficiency. It makes the more efficient vehicles in a given size range less expensive and signals the further savings that the consumer can expect at the pump. Since the incentives and fees are based around vehicles of the same size, it allows consumers to choose the size of the vehicle that best fits their needs, without forcing them to smaller vehicles in order to get a rebate. Both rebates and fees make it a paying proposition for manufacturers to add features to a vehicle that make it more fuel efficient. Most importantly, this system encourages and rewards innovation in fuel efficiency in the U.S. auto industry. The result is beneficial across the board. Consumers will benefit for years to come from a lesser hit on their wallets at the pump. The U.S. will benefit as we rebuild our auto industry for the coming global competition, while curbing our appetite for foreign oil and our future-threatening emissions of greenhouse gases.
Sen. Jeff Bingaman (D-N.M.) is chairman of the Senate Energy and Natural Resources Committee.