One of the hot news items the past few days has been the hybrid tax credits available to buyers of hybrid vehicles. They were increased in value for 2006, to as much as $3400, so everyone is recommending you should run out and buy a hybrid to pocket the money. Let me jump in here and say the credits are a bad
idea, more than that, they are misleading and counterproductive.
Looked at solely from the perspective of getting the cash, sure, go for it, except you won’t see it until you file your taxes in 2007 so it’s a bit down the road before you’ll spend that money. The other interesting aspect is that it only works if you are among the first 60,000 buyers of any one company’s hybrid vehicles and since Toyota sells far more Priuses than that, you’re out of luck if you wait.
So, let’s look at this incentive a little closer.
First, any incentive from the government is supposed to encourage people to do something they would not otherwise not do, yet the fact that you have to hurry to get it because so many people are already doing it shows the goverment is a bit late to this party and simply throwing politically popular money around where it’s not needed.
Second, the amount of the benefit is based on how much gas the individual vehicle saves over a conventional version of the same vehicle, seems logical, right? Think again. Suppose you buy a little hybrid version of a car that gets 40mpg compared to 30mpg in a non hybrid version, 10 more mpg, saving lots of gas right? Suppose you have a truck that gets 10mpg and a hybrid version gets only 12mpg. Still terrible right? Do a little math. For any given number of miles driven, the truck saves far more gas than the little car. If you’re a fellow that needs a truck for your business you can’t just stop driving so you get a hybrid truck. If you drive 15,000 miles per year, the old truck used 1500 gallons while the hybrid used 1250 gallons, a saving of 250 gallons. The little hybrid car in 15,000 miles uses 375 versus 500 gallons, a saving of only 125. The car saves half as much gas as the truck. Yet the tax incentive penalizes the truck and rewards the car. So we subsidize the soccer moms and movie stars and people who are just so very green, even though they are saving less gas while penalizing the guys out doing things like going to work and building our country and saving more gas. Good move.
Third, an incentive is simply the government and its bureaucrats declaring a winner in the higher efficiency race while punishing other possible methods of saving gas or improving efficiency that don’t have incentives to promote them. Of course we can just give incentives to everyone, right? Well, why not stay out of it and let the market declare a winner, that way we don’t get into incentives and credits and all of the extra tax calculations and inevitable fudging that goes on. The government just can’t keep its nose out of things that are happening anyway. Incentives didn’t start the hybrid car market, they aren’t needed to keep it going or make it grow.
Fourth, the CAFE numbers all of the incentives are based on are being revised because all the those hybrid buyers are finding out their cars get a lot fewer miles per gallon than the window sticker said. So are we giving incentives to undeserving people? Are we not giving incentives to people that should get them? Geez! Forget incentives.
Incentives make people feel good while actually hurting the goal they are intended to promote (in this case, saving gas) while making it more difficult for other ideas to make it to market. Of course, those in favor of incentives know most folks don’t think things through, they certainly don’t do the math, and swaying opinion by pushing government incentives is an easy vote getter. Makes a guy a bit twitchy just thinking about it.
kneeslider says
Does a little hybrid car save gas over its conventional counterpart? Absolutely. Does a hybrid truck save gas over its conventional counterpart? Absolutely. If our goal is to save the maximum number of gallons overall, should we direct incentives towards those who use more or less?
Keep in mind the reason for the incentive. If our goal is to save as much gasoline as possible, reducing the consumption of trucks should be encouraged as much or more than reducing the already lower consumption of cars. The incentives as written look at sheer mileage figures and percentage improved over conventional versions of the same vehicle. As I illustrated in the post, the hybrid truck saves more gas per mile driven. Unless we are expecting the person needing a truck to carry his tools and tow a trailer to do so with a Prius, we should encourage him to save gas the best way he can.
It’s the same idea as reducing emissions, do you try to clean up every last little bit of a vehicle’s exhaust pointing to the absolute reduction as justification or do you focus instead on the powerplant where even small efforts remove far more? You need to step back and look at the overall effect, whether saving gas or reducing emissions, and decide where to focus efforts and incentives. Economics, being the study of scarce resources, says to use those resources in the best way possible. Getting the most bang for the incentive buck says focus on the big improvements first.
The incentive as written saves less gas than it could if it was directed at the higher fuel consumption vehicles. It’s poorly written for the effect intended, unless, as I said, the effect was to score political points.
If, as you say, the amount of the incentive cannot have any meaningful effect on alternative fuel concepts, then the incentive can’t have any meaningful effect on the hybrid industry either. If they are short lived and not extremely generous, they’re simply too small and a pure waste of money.
On penalties: If you are running a race and some other participants are given a ride half way around the track, you can still run as fast as you always have so you’re not penalized. Right? Relative to those other runners, you might disagree. If some vehicle buyers are given tax dollars, which we all pay in but only they get out, we’re not penalized? Selective advantage bestowed upon a few does penalize others, especially when everyone pays but few collect at the whim of a government agency.
Stephen Waits says
Wow.. sorry, I don’t have a lengthy response like Rob. I just want to say..
Hybrids are dumb. Dumb people buy them. Now my tax dollars are paying for them too. Now I’m dumb.
I’ve said it before: http://swaits.com/articles/2006/01/12/diesel-vs-hybrids
–Steve
aaron says
Two comments:
1: I like the idea of encouraging the masses to save fuel. I particularly like that first adapters are given a boost, allowing more consumer dollars to fund the development of technology that may make our world a little cleaner down the road. Steve thinks hybrids are dumb? Soulless maybe, but if everyone sat on their ass driving the same old Otto cycle cars, diesel technology would never have been developed to any degree of usefulness. If the European market had not used gas prices, gas guzzler taxes, and rebates to drive consumers to diesel cars, the technology would still be stuck in the dark ages. Diesel motors have come a LONG way in the last 25 years. (with an ’81 Mercedes TD, I know what I’m talking about!)
For example: Porsche’s greatest bragging point about the not-yet-released 911 turbo? it’ll have the type of turbo used in diesels for at least 5 years! oooohhhhh. OK, I know the heat induced problems in fitting variable vane technology to gas motors have taken a while to overcome, but still…. (some of the recent advances in performance engines? New injection technology as pioneered on the last generation diesels.)
2: You say this is just politically popular money being thrown around? this money is for the first 60,000 cars from each manufacturer. This is a lifeline for General Motors. Their lobbyists are probably firing their guns in the air and praising their god of choice. Have no real hybrid technology? It doesn’t matter if you’ve slagged hybrids as useless, it doesn’t matter if you’re known to have tried passing off normal cars as hybrids to the press, it doesn’t even matter if you’ve rushed through development and produced a hybrid turd of an automobile. Once Toyota and Honda sell their 60,000, (and Toyota is projected to take only 6 months to do it) Ford and GM will be the only manufacturers getting this credit until the end of 2010. that’s 4+ years of subsidizing the purchase of American autos. As a plus, It will affect anyone else that may be considering marketing a hybrid in the near future. Hyundai was rumored to be working on a hybrid. Porsche too. If Porsche has caved, look for VW and Audi to join in. There’s a sweet exotic called the Connaught Type-D running a 2 liter V10 that is going to be a hybrid. and once the rocket scientists at GM have figured out that they own several nameplates, look for a hybrid in every lineup from Saab to Buick, Cadillac, and Hummer. Maybe even look for Geo to return, If the badge engineering bug bites too hard.
The end result? Maybe we’ll get a cheap, light, more efficient hybrid. And once Audi’s won Lemans with a diesel, maybe the world’s biggest automaker will try to save face with a hybrid racer soon after…I wonder how a Veryon spec Lexus would do at the pumps?
todd says
yeh, ok. I’ve been riding fuel efficient motorcycles for the last 15 years, averaging around 60-70mpg as my daily transportation. I am more worried about the government restricting my mode of transportation than I am of them giving me incentives to continue or others to join in on the savings. It IS all politically motivated, no doubt. man, a $3400 tax incentive would pay at least half of a new motorcycle.
-todd