Of bailouts, boycotts, and buying a Ford.

Of bailouts, boycotts, and buying a Ford.


This is the 2009 Ford Shelby Mustang GT 500. I want this car. When I was in high school I wanted the 1967 Shelby Cobra GT 500. Lunchroom debates raged over the merits of the Shelby Cobra vs. the Corvette Stingray. In my mind, it was no contest, even if Motor Trend was clearly in the bag for GM. I’d even be happy with the GT350 – then or now – ’67 or ’09. In the bailout debate, I keep seeing commentary that Detroit does not build cars that people want to buy. I am here to bear witness that this is simply not true. I want this car. My wife won’t let me have one, but I want it. Who knows, I may still get one some day. Just sayin…

With so much negative sentiment about the “Big 3” and the bailout, I thought I should start this post with something positive. I’ll have even more positive things to say about Ford later, but first – the bailout. Not much positive there. On Wednesday, the House of Representatives voted 237 – 170 to pass the Federal Auto Loan Bill. Friday, the Senate failed to reach the needed 60 vote threshold to pass the bill by a vote of 52 “for” and 35 “against”. 10 Republicans voted for it. 8 Democrats did not vote for it. It failed by 8 votes. Somehow this was widely reported as Republicans blocking the bill. Go figger. Personally, I don’t care how it got stopped as long as it did.

For at least one GM retiree, Michigan resident and blogger, the failure of the bill could only be blamed on one thing – Senator Richard Shelby and the State of Alabama. Of course. His call for a boycott of Alabama, has actually garnered quite a bit of media coverage. Of course.

Then late Friday we learned that our lame-duck President and the Bailout Czar (in yet another extra-constitutional working weekend maneuver) are going to give them our money anyway. Quite a roller coaster ride.

Stephen Green at Vodkapundit sums it up nicely (Warning – Green’s graphic includes gratuitous use of the “s” word):

The merits of a “Detroit 3” bailout has been debated here at Donklephant ad nauseum. Since I have already weighed in, I won’t repeat those arguments here. But there is one point that seems to get lost in all the discussion and is even reinforced in Green’s otherwise brilliant ad spoof.

The question should not be framed as whether the “auto industry” or the “Big Three” should get taxpayer money. The point is that these three companies are not the “auto industry’ and are not even the “domestic auto industry”. Arguably, Toyota makes cars with more American content and labor than do any of the “Big 3”. Moreover, the “3” are not monolithic, do not have the same operational structure, do not have the same financial needs, do not make the same cars, do not have the same competitive status and they should not be lumped together in this debate. These companies are competitors. So instead, lets consider them separately.

General Motors

GM is a basket case, plain and simple.

  • In 2007, Toyota sold 9.37 million vehicles.
  • In 2007, General Motors sold 9.37 million vehicles.
  • In 2007, Toyota made $17.1 billion.
  • In 2007, General Motors lost $38.7 billion.

Source:Mises Blog (H/T Crossing Wall Street)

GM has massive manufacturing overcapacity in workers and plants compared to to the number of cars they have sold recently, are selling now, or have any realistic expectation of selling in the foreseeable future. Nothing short of a chain saw restructuring can make them viable. It is not the kind of cars they make. It is not their quality. It is their business model. It is their labor costs. It is their excess capacity. The only rational way they can accomplish the radical restructuring they need will be under chapter 11 bankruptcy protection (as recommended by Nobel prize winning economists). Every penny they get from the taxpayer between now and that inevitability is money thrown into a bottomless pit.


Chrysler was taken private by Cerberus, which is one of the richest and best connected private equity firms on the planet. Doug M and Michael W at QandO have been beating the drum on the Cerberus issue for a couple of weeks. The story is getting some traction in the mainstream media and other blogs. This example from Forbes and the NYT:

“Buried on the business page of The New York Times Saturday were the details of Detroit’s biggest snow job yet—literally as well as figuratively. Turns out that Cerberus CEO John Snow, who spent three-and-a-half lackluster, and some might say lap-doggish, years as President Bush’s second Treasury secretary, is leading a who’s who of crony capitalists in a lobbying campaign for a taxpayer bailout to “salvage Cerberus’ investment in Chrysler.”

That’s right. Not to save the jobs of Chrysler employees or America’s disappearing manufacturing base, mind you, but to prevent “one of the world’s richest and most secretive private investment companies” from having to take a relatively modest financial hit and use some of its own capital to prop up the smallest of the major automakers.”

This stinks to high heaven. The Kabuki theater in Washington has nothing to do with “saving Chrysler”. Nothing. It has everything to do with asking taxpayers to bailout the Cerberus investors and save them from extending any additional risk to support their own speculative investment.


That brings us to Ford, and a ray of hope. Don’t get me wrong. Ford CEO Alan Mulally did not cover himself or his company in any more glory than the rest of the bozos in either of his two appearances before Congress. But this week, with the help of the great-grandson of the man who founded the company, Ford finally got it right:

“Chief Executive Alan Mulally and Executive Chairman Bill Ford Jr. told The Associated Press on Tuesday they are confident that the borrowing, coupled with restructuring and new product plans, will get them through the recession without relying on the government. Ford even said the century-old company that bears his family’s name might be able to use the independence from loans to its advantage. I think if they see Ford as a company trying to pull itself up by its own bootstraps, and making it on its own and pulling the right levers, I think that could be a positive for us,” Ford said.”

Proponents of the bailout bill make much of the argument that consumers will not buy a car from a company operating under Chapter 11 protection. Given the publicity of this debate, and the indisputable fact that this bridge loan will do nothing more than bridge the time until GM asks for much more money in March, that argument is becoming moot. Would you buy a car from a basket case of a company that refuses to face reality and take the strong medicine they need to survive? From a private equity firm without the balls to back their own investments? Or from a company that has already taken the right steps, has figured out a plan to weather the storm, and also happens to make some really great cars? A company like Ford.

If Ford declines the taxpayer money, Ford deserves the support of American car buyers. If GM and Chrysler take taxpayer money, they do not deserve the support of American car buyers.

Polls show that a majority of Americans oppose taxpayer dollars being used to support the Detroit 3 bailout. Perhaps a better idea than boycotting Alabama, is to boycott any company that takes taxpayer funds against the wishes of the majority of American taxpayers.

In my dreams, Americans take matters into their own hands. In my dreams, Americans begin to apply the discipline that our representatives in Washington and our President did not. In my dreams, Americans vote with their wallets and stop buying products from any company that solicit government bailouts. This might be tough to do with the banking industry which has effectively been nationalized, leaving few choices. But it is certainly something that Americans can do when choosing to buy a car between Ford, Chrysler, and GM.

I drive a 1999 Jeep Cherokee that I purchased new from a Dodge/Chrysler/Jeep dealer ten years ago. I thought I would replace it next summer. With all the great deals being thrown around, I may move that purchase up. I love that Jeep, it has been a great car for me. But if Chrysler/Cerebrus takes Federal money – I won’t buy another Jeep. If Ford declines the loan, I’ll be a Ford man now.

FWIW – in a small token of support for Ford doing the right thing – I thought I’d show them some love and offer up some of Justin’s blogspheric real estate for a little free advertising. This is a great American car company that builds great cars, is capable of making tough decisions in a tough market, and can run an automotive business without picking the pockets of the American taxpayers. Unlike GM. Unlike Chrysler.

Boycott Chrysler/Cerberus. Boycott GM. Buy a Ford.

Want fast? Consider this ….
Ford Shelby Mustang GT 500

Need a truck? Consider the ….
Ford F150 Pickup Truck

Going off road? Consider the …
Volvo XC70 SUV Crossover
I’m going to look at this one to replace my Jeep.

Going green? Consider the …
Ford Escape Hybrid

The Ford Shelby Mustang kicked the GM Corvette’s butt when I was in high school in 1967, and with the decision to decline government bailouts, Ford is still kicking GM butt today.

X-post excerpted from Divided We Stand United We Fall

  • TerenceC


    As much as it pains me to agree with you – I do:) I have been a big Ford fan throughout this economic fiasco. Bill Ford has been pounding on this “new” type of structure for the auto industry for atleast 10 years – he’s a good man. Ford was fighting an uphill battle and this crisis is exactly what he needed to get his ideas over the top. I bought an F150 15 years ago and have never had one problem with the “gas hog”. In 2006 I saw real problems coming with gasoline prices and since I use a vehicle (60,000 miles plus per year) for my business I shopped for something efficient, reliable and with great gas mileage. I still have the F-150 in my driveway, but I really didn’t have any choice for a good American made car with the great gas mileage I desired. Finally, I traded in my Cadillac STS and bought a new Toyota Prius – to be honest I think it’s the best car I have ever owned. GM and Chrysler should probably merge, combine manufacturing facilities, replace their board of directors, have their worthless stock held by the taxpayer, and undergo some very strenuous reorganization focused on solar, electric, renewables. Why couldn’t this merged entity use their manufacturing prowess and shuttered facilities for the green economy that we all know is coming – automobiles aside there are many things that could be manufactured here. Retrain UAW workers for assembly jobs in these re-tooled “green” plants. Even at these prices GM stock is still way over valued, as is Chrysler – buy it up, kill the boards, keep some of the management, and use tax payer dollars to re-seed these industries. Ford will continue to be the quintessential American automobile manufacturer – the others, who knows.

  • http://westanddivided.blogspot.com/ mw

    “As much as it pains me to agree with you – I do” – TC

    Hmmm. Disconcerting. I need to go back and recheck my premises.

    One thing that I learned in this debate, is the surprising high percentage of parts sourced in America for some of the foreign brands. In some specific cases higher than the Detroit brands. Overall the Detroit brands are higher, but it is interesting to see how some of the most popular brands stand up:

    * Ford F-150: 80% domestic content
    * Chevrolet Silverado 1500: 85% for ’08
    * Toyota Camry/Solara: 68% for ’08
    * Honda Accord: 60% for ’08
    * Toyota Corolla: 50% for ’09
    * Toyota Matrix: 65% for ’09
    * Dodge Ram: 68% for ’08
    * Honda Pilot: 70% for ’09
    * Honda Civic: 70% for ’08

    I think it is time for you to replace your F-150. The new one is getting rave reviews.

  • http://www.iconicmidwest.blogspot.com Rich Horton

    You have a lot in here, and I agree with much.

    But I’m not sold on the idea that GM is a basket case. For starters, a lot of the animus against GM from consumers is downright irrational. If you are in the market for a mid-size car and you wont look at a Malibu (starting around $17K) but will instead focus upon a not as nice Camry (starting at $22K)…thats just nuts. Whenever I talk cars with someone who hold these ideas they say something like, “Well, in the 80’s I had a GM car and it sucked.” The *1980’s*!!! They are basing their beliefs upon stuff that happened in the 80’s??? I always respond, “Well, my dad had a Datsun back in the 70’s that was a piece of crap….does that mean Nissan only makes bad cars 30 years later?” Hey, anyones past mistakes can take some doing to get beyond, but the medias incessant harping that GM “doesn’t make care people want to buy” really comes across as “you shouldn’t want to buy GM cars.”

    Besiddes, the reality is plenty of people buy GM products…to the tune of 9.37 million a year. Now, they have had difficulty making a profit when sales fall outside of the Truck/SUV/Luxury Car market. Why is that? Yes, labor costs are a problem. But would reworking the contract with the UAW solve the problem? I’m not sure. Much of the difficulty lies in the retirement benefits owed to retirees. Were GM to just go Ch. 11 what would happen to those liabilities? They would get dumped on taxpayers, right? (We’ve insured them, and GM pays out $7 billion a year in benefits) I’m just not convinced there is that much fat in the wages being paid to worker on the lines today.

    Another source of unprofitiability lies in government interference in how the Big 3 make cars and mandating the type of cars they make. You had the whining from left of center commentators for years about GM selling trucks and SUV’s to people…because (the horror) that is what the people wanted to drive. The message was ” No! Dont sell the American people what they want to buy. Sell them what we, the smart people, think they should buy!” And they got Washington to tell Detroit the same thing, by and large. Granted, GM and the others didnt enter that market with much enthusiasm – their centers of profit lay elsewhere – and when the market shifted on them because of rising fuel costs they were hammered.

    Anyway…it isn’t as if the last time GM was profitable was sometime last century. They last turned a profit in 2006. Their brass believes they will be profitable on the far side of this recession, as well. I’m sorry, but I dont see why that should be viewed as being completely unlikely.

  • TerenceC


    I couldn’t buy a new one. An old truck in perfect condition is nearly as good as a well broken in pair of boots, a good dog, or a quiet wife who doesn’t nag much and still looks great 25 years later. Not all necessarily in that order of course.

    Horton – I appreciate your point, however it isn’t a question of selling what people want to buy or not. It’s a question of being part of the problem or part of the solution. Americans love cheap gas and big cars – who doesn’t? Unfortunately economic reality is that petroleum is an environmental problem and it forces us to keep and train a massive military in order to threaten the producers. Alternative sources of energy are not only possible right now but necessary for the long term survival of the planet. A strong focus on this new technology will be some countries economic backbone in the decades to come – why not ours. It’s time we went to war against real problems and made long term economic decisions that will benefit all of us – rather than just a few.

  • Bob Collins

    Rich Horton Said:
    …GM selling trucks and SUV’s to people…because (the horror) that is what the people wanted to drive. [end quote]

    I may be disappointed in what vehicle my fellow citizen chooses to purchase and drive but I don’t hold that against the carmakers for building what they want.

    What I do attack the carmakers for is the stupid, mistaken belief that the high profit, low technology truck/SUV market would go on forever. For a business to stay in business, they have to both serve the current customers wants and develop new products that anticipate their future wants. With the disgustingly high profit SUV sales, GM and the others should have designed new vehicles that we would want today.

    They didn’t. They took their profits and now they want us to cover for their lack of planning. The market has a solution for being stupid. Let them fail!

  • john smith

    Bailout or not the “Big 3” have lost my entire family as potential customers due to their collective ongoing refusal to produce a reliable product.

    Over the course of my adult life I have always bought an American brand when buying a new car or truck, but have never been completely satisfied with the quality or potential longevity of those vehicles. Notable instances are an 88 Power Wagon, 94 Intrepid and my current total POS an 04 Saturn. Both the Power Wagon and Intrepid were junk and started an ongoing laundry list of issues shortly after purchase (and I’m not going into the inept customer service I got when trying to get fixes under the respective warranties).

    Currently I have 6 cars, 4 American brands and 2 foreign brands and have decided we will NEVER buy an American brand again regardless. The break down (no pun intended) is:

    04 Mustang 42,000 miles

    04 Saturn L300 56,000 miles (when the OD locked up)

    93 Thunderbird SC 110,000 miles

    68 Roadrunner 210,000 miles

    91 Mazda 250,000 miles

    92 Toyota 350,000 miles

    Currently the Mustang has gone through a set of rear brake calipers, has major steering column electrical issues and the interior is falling apart.

    My Saturn has gone through three cats, three batteries, uses 2+ quarts/1000 miles constantly goes into “reduced power mode” and is the absolute worst quality car I have ever bought. We still have it only because I refuse to finance the balance owed along with the price of the Toyota that will replace it.

    While the Thunderbird was bought because it is fun to drive it is a constant chore to keep in running condition due to multiple original equipment failures and is currently awaiting a new set of front calipers plus a cam position sensor.

    Now the Roadrunner really doesn’t compare to the other American brands due to age/collectors value but it is the higher mileage and four times the age of the others and has practically no issues whatsoever with very little in the was of restoration work over the course of its life.

    On the other hand the two foreign brands that have significantly more mileage than the others have absolutely nothing wrong, (the Mazda still has the original clutch and CV shafts) and get much better mileage than almost all the advertised American brands available today. Additionally we previously owned a Camry that had 425,000 miles when we traded it in on a GM product that managed to blow the NO 1 spark plug completely out of the cylinder within the 1st 15,000 miles (again repairs were complicated by useless customer service).

    All of these cars have been babied and receive above average care and maintenance, despite this the American brands are falling apart with relatively low mileage.

    Want to save Detroit? Try making a solid car that people will want instead of junk that won’t last the life of the loan.

  • http://www.iconicmidwest.blogspot.com Rich Horton

    I appreciate your point, however it isn’t a question of selling what people want to buy or not. It’s a question of being part of the problem or part of the solution. Americans love cheap gas and big cars – who doesn’t? Unfortunately economic reality is that petroleum is an environmental problem….

    Uh…no it isn’t. Its a political/ideological problem. If $4-$8 a gallon gas becomes the norm people will choose different cars, like they do in Europe. However, the American people will not choose artificially high gas prices the way Europeans do….no matter what Al Gore thinks of the internal combustion engine.

    I think it is clear the shock of relatively high gasoline prices over the last 36 months is resulting in all of the Big 3 having more fuel efficient products in the production lines. Lots of folks are ticked because they waited for market forces to have this effect INSTEAD of the Big 3 adopting a particular political/ideological committment several years ago. My response is, so what? I mean, were GM the only company facing trouble there would be a point. But even Honda has found demand for their product down 33% in this economic environment. The bailouts have much more to do with the overall economic situation, and was not caused because GM wasn’t “green” enough.

    I guess I dont understand the desire to punish GM (and their employees, as well as the employees of their suppliers as well) because they are deemed politically suspect.

  • http://www.scottmonty.com Scott Monty

    Thanks for taking the time to separate out the “Big 3” and for your confidence in Ford. We have made strides as you’ve indicated and we began the transformation 2 years ago when Bill Ford brought on Alan Mulally. Admittedly, there is still much to be done and we need to win the trust of American consumers, but we’re getting there.

    According to J.D. Power & Associates, the quality of new Ford vehicles is now on par with that of Toyota & Honda. We’re committed to best-in-class or among the best-in-class in fuel economy in every segment we compete. And new cars like the Ford Fusion hybrid and the Ford Fiesta (coming over from Europe) are bringing more alternatives to our buyers.

    We’ve outlined our progress, put up some videos (with more to come) and shared our plan on The Ford Story at: http://thefordstory.com.

    Thanks again for recognizing the Ford difference.

    Scott Monty
    Global Digital Communications
    Ford Motor Company

  • L


    I would say gas prices in the US are artificially low. Given the enormity of externalities that come with driving (congestion, security concerns, environmental damage) most will agree that the price of gas (even including federal and state taxes) do not properly reflect its actual cost to the individual and society. Had gasoline been priced properly using a consumption tax, we may not be waiting for US automakers to retool.

    I also don’t see your reasoning that allowing an auto maker to go bankrupt would be punishing GM. If you want market forces to drive the Big 3’s production (which I agree with, and a gas tax internalizing social costs would be well within the market realm) then shouldn’t you let the market govern its survival or not? Bankruptcy allows for a retooling of company infrastructure including downsizing benefits and employment and increasing efficiency, something a loan does not necessarily give the incentive to do. Our goal should be an automobile industry that can exist on profits not taxpayer dollars, and if it cannot, maybe the resources that it currently uses would be better used somewhere else.

  • http://www.andrewiandodge.com Andrew Ian Dodge

    Fords are so bloody ugly though. At least Mustangs come in a stick unlike the freaking Challenger.

    The bailout is a bad idea in any case.

  • http://westanddivided.blogspot.com/ mw

    It’s very cool that you stopped by and took the time to respond directly. Just in case you are following up, I’ve got a few suggestions…

    First, – You thanked me for taking the time to separate Ford from the “big 3”. You are welcome. Clearly Ford is head and shoulders above the other two now, because of the actions that the company has been taking in recent years. But, as a marketing guy, I’m sure you appreciate that Ford is sleeping in a bed of its own making. When your CEO goes up to Capitol Hill, tin-cup in hand, shoulder to shoulder with two other Detroit based car companies in trouble… well… when you sleep with dogs, you wake up with fleas. You are inviting – no – you are insisting that everyone put all three companies in the same basket. If you want to fix that perception, you have to undo the significant damage done by that performance before Congress.

    Ford took a step in the right direction when Bill and Alan said they would not take bridge loans this round. But it was a small step, and an inadequate step because of the equivocation in the statement and leaving the door open for taking taxpayer money later. Ford needs to clearly and publicly cut itself loose from the dead weight that is GM and Chrysler or get dragged down in the mind of public perception along with them. There is an opportunity for Ford to do this. Here, let me help.

    This is what Bill Ford needs to say immediately before or after the Paulson announcement to open up the TARP funds to automobile manufacturers:

    “The board of Directors have met and we have directed our CEO to withdraw any requests to the Federal government for bailout funds. We regret that we permitted Alan to go to Washington and request federal support. We apologize to the American people for that unfortunate display. It was a mistake. Those actions were not consistent with our culture or our history. My great-grandfather built this company on the American values of innovation, value, quality and hard work. We will grow this company on those same values. This Ford Company chooses to take the right path and grow and succeed by building great cars, with great quality, at a great value, and with outstanding support to our valued clients. We will trust our future to our ability to delight our customers. That is the only way Henry Ford would have it.” – Bill Ford

    Also, I went to the link in your comment. There I found highlighted a slide presentation that is designed to make the case that Ford is the same as the other two Detroit car manufacturers, and making the case why Ford is deserving of public funds. That has got to go.

    Ok. That should do it. Happy to help. Just keep me in mind when this post goes viral and hordes of angry taxpayers reject GM and Chrysler and come streaming into Ford dealerships to buy cars.

    Forget what Andrew says in his comment. The Ford Shelby GT500 Mustang is gorgeous. I like the sliver-blue color scheme in the picture at the top of the post. Just sayin… you know… in case you guys were feeling particularly grateful for my advice.

  • Bob Smith

    Great article. I do have one comment though. You said, “…In my dreams, Americans vote with their wallets and stop buying products from any company that solicit government bailouts. This might be tough to do with the banking industry which has effectively been nationalized, leaving few choices.”

    There is another choice – your local credit union. Stop doing business with banks and use credit unions instead.

  • http://itsthe21stcenturystupid.wordpress.com/ Jim S


    Since you took the time to post something here might I suggest that one thing to take back to your people is that they move into the 21st century? Car makers, like any other business, wants to establish some brand loyalty among the young. I suggest that someone, in my mind it would preferably be Ford, pay attention to Barack Obama’s presidential campaign? The same tools that forged his coalition among the young would also be effective for businesses that could deliver product they want. An actual interactive community build around the Ford brand could also work. This is something that could be inspired by Microsoft. Go to their web sites and you’ll find that the software engineers have blogs where they communicate with customers. Can you imagine if actual two way communication took place between engineers and other people in important positions and customers?

  • http://westanddivided.blogspot.com/ mw

    Good point. I don’t even know what local credit union choices we have, but I’ll check it out.

  • http://www.scottmonty.com Scott Monty

    @mw – we were there at the behest of Congress as well as to support the industry, as it’s a very interdependent one. We share about 80% of the same suppliers (which incidentally are also shared by foreign automakers who manufacture cars in the U.S.).

    And when we were asking for funds, we specifically did not ask for cash; we asked for access to an emergency line of credit, only if something catastrophic should happen to our U.S. competition or if the economy worsened. I’m sure you’ll appreciate that we can’t categorically rule out a business decision without knowing what the market conditions will be in the future.

    @Jim S – the Ford Story site is actually a step in that direction. We put it up in just 4 days (over Thanksgiving weekend, no less). The plan is to evolve it to follow that very model.

  • http://www.iconicmidwest.blogspot.com Rich Horton

    L says

    I would say gas prices in the US are artificially low. Given the enormity of externalities that come with driving (congestion, security concerns, environmental damage) most will agree that the price of gas (even including federal and state taxes) do not properly reflect its actual cost to the individual and society.

    I’ve heard these arguments, and I’ve looked at the numbers, and they dont add up. For example, we do not just use the highway system for personal transportation. DO you really think the benefit we get in terms of variety and low cost of food (supplied to all of our local groceries via trucks from long distances) is outweighed by “congestion, security concerns, & environmental damage” ???? Very obviously it does not.

    And the truth is you would have to work pretty hard to get average Americans to agree that taxes on gasoline need to be raised 10 to 20 times their current rate, because somehow the market price of gas doesnt do what “we” want it to.

    Still, and the is a question of simple definition here, I dont see how pricing a product at market rates can be defined as being artificially low, while putting punative taxes on a product to discourage its use is somehow “normal.”

  • http://www.donklephant.com Justin Gardner

    And when we were asking for funds, we specifically did not ask for cash; we asked for access to an emergency line of credit, only if something catastrophic should happen to our U.S. competition or if the economy worsened. I’m sure you’ll appreciate that we can’t categorically rule out a business decision without knowing what the market conditions will be in the future.

    Scott, thank you for clarifying this. I think it’s been too often mischaracterized that the companies were looking for a handout instead of a loan. But the simple fact of the matter is that the credit markets are still frozen up for big ticket loans like this, and so the only place big companies can go is directly to the government.

  • L


    The low cost of food and variety is not outweighed by congestion, security concerns and environmental damage, but if the transportation of it contributes to these three things then it does cost too little. Instituting a gas tax would not eliminate the variety and low cost of our food, it may make it more expensive, but once again, it would be priced at its true value. So, food shipments would not stop (as you seem to imply), food would just become marginally more expensive….and there may be benefits to that, but that is another subject.

    It is true that you would have to work pretty hard to get Americans to agree to this tax. That’s probably why neither party has attempted to increase the gas tax even though advisers, both to Democrats and Republicans, would argue for it.

    With regards to market rates and a punitive tax. As I noted, gasoline is not a commodity like wheat (where few or no externalities exist). When you burn a gallon of gasoline, you put some amount of pollution into the air that society, collectively, pays the cost of and you will pay only a fraction of the cost. However, it was only you who benefited from the burning of that gallon of gasoline, so now you are deriving a benefit that everyone else is paying for. You are, as you noted, paying market rates but not, as most would agree, the optimal price. You are consuming more gas than you would if you were paying the full cost of its use. This is not a punitive tax, it is a tax to reach the welfare-maximizing price.

  • Aaron

    Lots of good info here. I will say I’d wish GM would get their act together long enough to release the Volt. Full plug-in hybrid that goes 40 miles on a charge and 600 miles on a tank of gas, as well as doing the proper method of completely separating the gas engine from the wheels. And it looks like an actual car!

    Scott, if you guys come out with one of these, you’ll have a convert. 😉

    Also agreed on Chrysler. If they’re not actually concerned about their product, then I’m not concerned to give them my money.

  • http://www.iconicmidwest.blogspot.com Rich Horton

    With regards to market rates and a punitive tax. As I noted, gasoline is not a commodity like wheat (where few or no externalities exist). When you burn a gallon of gasoline, you put some amount of pollution into the air that society, collectively, pays the cost of and you will pay only a fraction of the cost.

    So driving 30 miles in my Malibu does $4 or $5 dollars worth of harm to the environment?

    Oh, c’mon.

    And there are plenty of people who argue modern agricultural practices (use of fossil fuel burning equipment, use of petro-chemically dervived fertilizers and pesticides, use of diesel burning trucks to ship food hundred/thousands of miles, etc.) have “negative externalities”. So, using your logic, how could we possibly allow such practices to continue? I mean, according to your model my driving 240 miles a week should result in my doing $1600 worth of damage to the enviornment during the course of year. That comes to about 13 cents for every mile I drive. Well, a diesel truck is more polluting, so lets say they cause 20 cents worth of environmental damage per mile. According to the Feds Trucks travelled 1.1 trillion miles in 2005, so at 20 cents a mile that would come to: $220 Billion dollars a year every year….

    Sorry. Don’t buy it for a second.

  • L


    Using my logic, agriculture would pay for the damage it does because of the tax on gasoline. That works out perfectly doesn’t it? I don’t see how my logic would cause these practices to discontinue, just pay for the damage they do. (Oh, and I just used the concrete environment example, there are other externalities).

    So, I never threw out any numbers but since you decided to maybe I can go along. Your example implies that the total tax on gasoline would be $4 or $5 a gallon. I never argued for a $4 or $5 tax per gallon of gasoline. Most models I have seen advocated for a $1 per gallon gasoline tax increase, which including current and federal state gasoline taxes would come to $1.40. You can do all the calculations over again if you want, it is the principle behind the tax not the numbers I care about.

  • http://www.iconicmidwest.blogspot.com Rich Horton

    I thought the idea was to get European style gas prices. Which is achieved not only by higher taxes, but by limiting gasoline production in general. (Thus the total “non-artificially low” gas price $4 – $5 dollars more than typical US prices. Such as in July (http://money.cnn.com/2008/05/01/news/international/usgas_price/?postversion=2008050109), when US gas was $3.45 here and in the $7 – $8 dollar range in Europe.) Its disengenous to act as if the added regulation limiting gasoline production isn’t a “tax” on consumers.

    Also, in your model, when do farmers pay for the other damage they do before they ever ship their product to market?

  • http://www.iconicmidwest.blogspot.com Rich Horton

    Oh, MW…did you see this on the 2010 Ford Fusion Hybrid? (http://www.oncars.com/news-blogs/story/286/First-Drive—2010-Ford-Fusion) The word used is “stunning.”

  • L

    I am just talking about a gas tax increase. I don’t think European gas is taxed or regulated in a necessarily efficient manner either.

    Specifically to farmers, think about it, if gasoline prices increase then they pay more for operations on their farm that deal specifically with the burning of gasoline. In terms of other environmental damage, well, the same principle can be used to tax the externalities of farm production. What I am talking about is a Pigouvian tax, you can look it up if you are interested.

    Also, the nice thing about taxing economic “bads” is that we can untax economic “goods” (i.e. income, capital gains) and the result could theoretically be revenue neutral.

  • http://westanddivided.blogspot.com/ mw

    I had not seen that. Thanks. Impressive. Still, I’ll take the Shelby and pay for the gas (just on weekends, and maybe an occasional high speed run down to LA and back). But I won’t buy either if Ford takes one dollar of taxpayer funds. I’ll just buy an Alabama built Toyota.

    BTW – I’ve been following the RH and “L” gas tax debate in this thread with interest. I have not weighed in because I have not really made up my mind on this. I do think there is a libertarian case to be made for polluters to pay the full price of their environmental damage, and that would include my high speed, low mileage, CO2 spewing Shelby coastal run. It does seem that some sort of gas tax would be reasonable mechanism for that. But – I have not thought it through. Anyway, its food for thought.

  • http://www.iconicmidwest.blogspot.com Rich Horton

    L, well…then you are advocating something that none of the powers that be is advocating. So, your idea would be preferable to that…but I still say it grossly exaggerates the environmental impact of driving. In my home state we already pay 51 cents a gallon in tax. (Which comes to a 17% rate at $3 a gallon, or a 29% rate at my last fill-up at $1.77.) How am I not supposed to see the desire to raise that rate to the 50% – 88% range anything more than a grab for money? These revenue stream already go into “general revenue” funds at the state level. (Which accounts for most of the taxes in most states.) It is going to be the same dodge that we had when lotteries were instituted. We were all sold on the idea that the money raised would go to “education”…but it largely never did. It went into general revenue instead. Every indication is the same thing is gonna happen here.

    Particularly, when I see European road tax plans ( http://www.st-andrews.ac.uk/visiting/Travelplan/sustainabledriving/) that would cost $53/year for fuel efficient cars up to $450/year for guzzlers, I dont understand why my 2001 Malibu (still getting 28mpg) should cost me $800-$900 a year in tax. Whatever reason the government wants that amount of money from me, it isn’t because of my environmental imapct.

  • L


    I understand concerns about the government’s ability both to set appropriate tax rates and use revenues in a manner that benefits everybody. I would only say, in defense of my numbers, that these figures aren’t totally ambiguous and their magnitude is of course up for debate. Anyway, as this is near the end of the current page and I have just finished my semester (yes I am a pain in the ass, know it all college student), I’ll leave it at that.

    If you are interested in some of the literature on gasoline taxes check our parry and small efficient gas tax (free on google).