Detroit Automakers Need Predictable Gas Prices

The volatility of gas prices has hurt carmakers' ability to formulate long-term plans.
The volatility of gas prices has hurt carmakers' ability to formulate long-term plans. (By Steven Senne -- Associated Press)
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By Allan Sloan
Tuesday, November 18, 2008

The big game in Washington these days consists of running around dealing with the problems of the Detroit Three automakers, formerly the Big Three.

But all the to-ing and fro-ing about how (or whether) to keep General Motors, Ford and Chrysler out of bankruptcy is ignoring the elephant in the room -- lower gasoline prices. As you almost certainly know, they've fallen about 50 percent from the record levels they reached in July, making them one of the few bright spots in our economic picture.

So let me fulfill my traditional role of skunk in the garden party and suggest that these lower gas prices aren't an unalloyed good thing. Let me also suggest that we jack them up, sharply, by adopting a big honking tax on gasoline.

This idea has been around for years and has gotten no traction. But it's an idea whose time has come, given the stomach-churning ups and downs of gas prices, the visible folly of leaving our fate to oil-exporting countries and the speculators who helped drive prices irrationally high and may now be driving them irrationally low, and the fact that we'll soon have a president who proposed targeted tax increases during the campaign and still got elected.

Yes, a big gas tax would cause economic hardship, especially to people who are barely making ends meet. But we could refund the money to those needy people through the income tax. We could also refund the gas tax to those of us who aren't particularly needy or else use it for energy research-and-development or public works or -- dare I say it -- for deficit reduction.

The idea of this tax isn't to inflict pain or get people out of cars -- it's to make gasoline prices predictable so that automakers and consumers could make rational long-term decisions rather than being subject to the roller-coaster ride we've taken in the past year.

Having permanently high gas prices would let the market, rather than incomprehensible, loophole-ridden Corporate Average Fuel Economy regulations, guide the decisions on what kinds of vehicles Americans get to drive.

As part of my plan, I'd scrap these CAFE standards and abandon the current attempts to force automakers to spend tens of billions of dollars to meet higher fuel-economy standards. Instead, the market, guided by a high gas tax, would rule.

Before you send me a scathing e-mail about my being a car-hating elitist, you should know that I live in a suburb and own two vehicles, one of them an SUV. When it cost me more than 50 bucks to fill the SUV's tank this summer, I was not a happy camper. Even though the money wasn't enough to make any serious difference in how I live my life, I winced. And I kept thinking of how I'd rather be paying this price to ourselves, rather than having the money go to oil-producing countries, many of which -- Russia, Iran and Venezuela come to mind -- are ruled by governments that are no friends of the United States.

Unless we can summon the political will to slap a big tax on gasoline, we'll be setting ourselves up for the next spike in oil prices. History shows that there will be a spike, whether it comes from a world economic recovery or a terrorist strike against oil facilities or something else that we can't predict.

As a final argument, permanently high gasoline prices will avoid the whipsaw effect -- the federal government giving the Detroit Three money to step up production of high-mileage vehicles that will hit the market at a time when low gas prices will destroy the market for them.

There are plenty of things we ought to do to establish rational, market-driven energy policies in the United States. We'll deal with those another day. But a gas tax would be a good start. I don't expect to see that any time soon -- but I can always hope.

Allan Sloan is Fortune magazine's senior editor at large. His e-mail address is

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