Tuesday, March 20, 2007

The Car Cartel

In Monday's federal budget, Prime Minister Steven Harper introduced a program to tax gas-guzzling cars and provide hefty rebates for fuel-efficient cars.

To be eligible for a rebate, a new vehicle must be purchased or leased after March 19. For a rebate, cars must have a combined fuel consumption rating of 6.5 liters per 100 kilometers or less, while minivans, SUVs and light pickup trucks must have a rating of 8.3 liters/100 kilometers or less. The rebate starts at $1,000, and rises by $500 for each half liter/100-kilometer improvement, to a maximum of $2,000.

New passenger vehicles (excluding trucks) that consume more than 13 liters/100 kilometers will be hit with a $1,000 tax. The tax will increase by $1,000 for each extra liter/100 kilometers, to a maximum of $4,000.

Here are some examples of how it will work (with liters/100 kilometers in brackets, where I know them):

Toyota Prius: $2,000 rebate (4.1)
Honda Civic Hybrid: $2,000 rebate (4.5)
Ford Escape HEV 4x4: $2,000 rebate ($1,500?) (7.4)
Toyota Corolla: $1,000 rebate (6.3)
Mini Cooper M6: $1,000 rebate (6.5)
Saturn Vue Hybrid: $1,000 rebate (7.9)
Hummer: $4,000 tax
Jeep Cherokee: $4,000 tax

The car industry has some similarities to the illegal drug industry. If we want to reduce trafficking in illegal drugs, we need to target both the drug addicts in inner cities and the drug producers in South America and Afghanistan. If we want to reduce oil consumption, we need to influence both drivers in Canada and the big car manufacturers in Detroit and Japan.

In fact, consumer demand for small, fuel-efficient cars has been around for a long time, and manufacturers still aren't providing North Americans with good options. I drive a 10-year-old Corolla and am starting to think about buying a new car. I hope to put off the purchase for a few years, but I want to be ready in case my car starts to be unreliable. I want a car that is very small and very fuel efficient, but that has low maintenance costs and will last a long time. Oh yeah, and I want to spend as little as possible.

I don't want a hybrid. Hybrids have too much expensive, incomprehensible stuff that can break and that costs a fortune to repair. I see a hybrid as like a high-efficiency furnace: it costs less in fuel but the total cost of running it is no better than a less efficient model because of higher maintenance costs. (Plus, there's this sort of criticism of the Prius, FWIW.)

I don't want a diesel. I don't want to be stuck in some unknown town unable to find a gas station that sells diesel fuel. Plus I park outside and I'm concerned about problems starting them.

I really love the "smart car" but I don't want one because they're diesel. Also, I've read about a number of downsides: very poor handling; heat buildup in the back that means you can't carry groceries; high maintenance costs; things in the back storage area flying into the front if you brake hard.

VW bugs and Minis have been morphed into luxury cars, and cost way more than I would ever pay for a vehicle.

I want a reliable car that will last a long time without expensive maintenance, so that rules out American cars. (I heard the president of a big US auto company on the news a while back. He said that they had finally learned the lesson of providing cars that lasted. He said, "We have learned that people want to keep cars for three, even five years!" My god.)

I'd prefer a two-door with a hatchback (what they call a three-door). I really liked the Toyota Echo. However, Toyota replaced the wildly popular Echo with the Yaris, which is much glitzier, bigger, and has less visibility for short people. There are other options, like the Honda Fit, but they appear to be 4-door sedans, and that's too big for me. If I wanted that, I'd probably get another Corolla.

Mileage on the Yaris is 6.9 liters/100km city, 5.5 hiway, which isn't too bad. It may be the only car on the market that will meet my needs, but it's not as small or fuel-efficient as I want. Plus, even economy cars now have too many luxuries. I don't want automatic windows (which I believe are standard on Hondas). I don't want these new-fangled side-view mirrors that cost $500 to replace, or color-coordinated bumpers that don't provide impact protection (but I guess I'm stuck with those). I don't want computerized seats or automatic transmission. I don't want air conditioning - you can kiss fuel efficiency goodbye when you run air conditioning. I just want a basic, cheap, reliable, fuel-efficient little car.

Surely I'm not the only person asking for this. I can sort of see why the car industry doesn't want to provide a cheap, basic car. Labor costs are extremely high in the car industry, so the company squeezes out a little more profit by adding expensive luxury items that up the price of the car. And they use expensive parts to get a little more profit out of the parts business. But European car manufacturers face the same cost structure, and they produce all kinds of small cars.

The Toronto Star provided a couple of revealing quotes yesterday:

- Auto industry analyst Dennis DesRosiers: "The timing is just terrible for some companies. The federal government just threw a missile into their boardrooms. Can you imagine the president of GM Canada phoning Detroit to tell his bosses that they're slapping some of our models with levies."

- Buzz Hargrove, President of the Canadian Auto Workers: "The incentive is to buy vehicles that we don't produce in Canada. We've got enough problems in the industry, enough people already on layoff and thousands scheduled to be laid off before the end of the year. And now our government is encouraging people to buy vehicles from offshore to throw more people out of work." (Buzz is being a tad disengenuous because Toyotas that are made in Canada will benefit, but Toyota isn't unionized.)

I say: Kudos to the Harper government. We need someone to throw a missile into the boardrooms of the big car manufacturers. We need the whole industry to start worrying about how to provide more fuel-efficient cars. The program should go further, and include trucks in the gas-guzzling category. (If anyone needs a vehicle for work, it should receive exemptions.) But it's a damn good start.

Note: The Globe & Mail Report on Business came out against the program, saying that it had been tried in Ontario and BC and didn't work. I don't know about BC, but in Ontario the rebate and the levy were both $100. Of course it had no effect.


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