As we went to press, the Canadian government was pondering a new form of vehicle taxation that has us doubting its efficiency. Promoting the act of buying a fuel-efficient car, yes, but knocking those who buy a large car or truck? How about families that need minivans? How about trades people in need of a truck or some sort of cargo space for their work? How about those in rural areas needing a tough vehicle? Why beat up on them when the problem is mostly the offering by the manufacturers and not the already very responsible buying habits of Canadians?
Noted industry analyst Dennis DesRosiers just sent out his initial thoughts on the program. Food for thought...
"The entire premise of the so-called vehicle efficiency incentive (VEI) is wrong. VEIs cannot take Canada to the next level of fuel efficiency because they push OEMs to build vehicles that many Canadians do not want. The only approach is a gas tax like the one that has been so successful in Europe and other overseas markets. These same domestic OEMs that everyone blasts for gas guzzlers sell high-mileage fleets in Europe because consumers want to buy efficient vehicles because they pay high gas taxes that push gas over $1.50/litre. At the hint of a gas tax, buyers scramble for fuel-efficient vehicles. This is exactly what is already happening in Canada. Remember that over 50 percent of Canadians last year bought a small, fuel-efficient, entry-level vehicle. Look at the attached chart: Month in and month out, when gas prices went up over the last four years, entry-level vehicle sales followed. When gas prices went down, entry-level vehicle sales went down. If you increase gas prices then, driven by demand (not policy), OEMs will bring in more of the fuel-efficient engines from Europe and Asia that were previously undesirable in Canada and the U.S. -- GM could add the gas miser engines they leave in Europe to the new Saturn Astra and have a big, profitable success. There are dozens of diesel engines in Europe that could be successful in Canada! Longer term, this demand will drive investment and innovation that fuels the economy and provides a context where OEMs can compete for return on investment.
Higher gas prices will encourage the drivers of the other 19 million plus vehicles on the road on Canada to drive less and better maintain their existing vehicle. All the VEI does is to encourage maybe 20,000 to 50,000 Canadians to be more responsible with their new vehicle purchase. Nineteen million driving less will do a lot more for the environment than getting a few thousand new vehicle consumers to be more responsible. And encouraging the OEMs to bring in more efficient vehicles from around the world helps GM, Ford and DCX who have some the most advanced diesel technology in the European market.
Why is increasing gas prices never brought up? Political fear is the only reason. Read that as Alberta. Don't you find it interesting that the pickups are the vehicles exempt from the VEI tax? And guess what vehicles Albertans purchase in large numbers? Yup, they purchase pickups. Lawmakers see the discussion over higher gas taxes as political suicide -- they fear they will not get re-elected if they support a tax. Pure and simple.
The force behind policies like a feebate unfortunately is unstoppable. For instance, the National Roundtable on the Environment submitted a report to the federal government pointing out the flaws in a feebate system. This didn't stop the government. The failure of the Ontario fuel efficiency tax and the B.C. luxury vehicle tax did not stop the government.
OEMs have to understand that they cannot make this just go away. Their only play is to replace it with a stronger alternative that drives demand that they can plan their business around -- a progressive gas tax.
Satan abides in the details on three primary questions -- How much? How fast? And what do you do with the tax revenue? There are plenty of places to use the money -- energy R&D is an obvious one. The taxes can be implemented gradually to lessen the political fallout and who knows how high per litre?
It likely would take at least a nickel per litre and maybe even 10 cents per litre. That could be figured out by some smart economist. But these issues could be figured out.
Fuel efficiency taxes and pointing the national energy policy gun at OEMs heads are stupid, senseless and cowardly.
The identical debate is going on in the U.S. right now over increasing CAFE standards. Our politicians are cowards. Lawmakers and citizens need to summon just a tiny fraction of their courage and step up to self-responsibility and accountability and protect our environment through a progressive gas tax. And speaking of cowardly politicians, why are they hiding behind a name. It is a feebate my friends not a VEI. The primary intent of this policy is to tax vehicles and I struggle with the inefficiency of this concept when there are better tools available to the politicians.
At the same time I support the rebate side of the equation if it is restricted to advanced technology vehicles like hybrids, clean diesel and certain E85 vehicles. The resistance to these vehicles is price. They cost more to buy because of the technology. Many believe they are worth the extra cost, not because of the fuel you save but because they offer much better overall performance and fuel efficiency. But most consumers can't get by the price tag. So nudge them over the price barrier. This makes some sense at least for a limited time period." -- Dennis DesRosiers