The $4 Moment

Posted by Carl Pope, Huffington Post at 3:27 PM on June 9, 2008.

San Francisco -- National gasoline prices hit $4/gallon last week.  And the last of the auto industry's chickens came home to roost. General Motors closed four more assembly plants that had been making trucks and SUVs and said it might dump its Hummer brand.

This brings the total (and avoidable) economic carnage from Detroit's unwillingness to modernize its fleet a decade ago to 35 assembly plants and 35 parts manufacturers in just three years. The industry now concedes that consumer preferences have changed "irrevocably."

Conservative columnist Charles Krauthammer lambasted the industry and the government, pointing out that by letting the oil market, instead of preventive taxes and regulation, end the SUV era, we committed economic suicide: "Unfortunately, instead of hiking the price ourselves by means of a gasoline tax that could be instantly refunded to the American people in the form of lower payroll taxes, we let the Saudis, Venezuelans, Russians and Iranians do the taxing for us -- and pocket the money that the tax would have recycled back to the American worker."

Krauthammer doesn't agree with us about the need for fuel-efficiency standards -- he thinks that gas taxes alone would have done the job. But his basic point is right. We're now transferring to petro-states hundreds of billions of dollars a year that we could have kept at home. We're also stuck with a whole decade's worth of gas-guzzling vehicles that no one can afford to drive and that will almost certainly remain a major drag on millions of household budgets for years to come.

If Detroit were rational and thought about the long-term interests of the United States, Krauthammer might be right that gas prices alone would be enough. But instead the industry has demonstrated that it is wildly irrational. Its long-term vision doesn't extend farther than moving assembly plants to Mexico, something that Ford is already doing with a new Fiesta assembly line.

So it's a major problem that the Bush administration is about to adopt  fuel-efficiency rules that assume that the price of gasoline will drop all the way back to $2.45 a gallon. That assumption sets a fuel-efficiency standard of 31 mpg as the best the auto industry can do by 2015. But the National Highway Traffic Safety Administration (NHTSA) admits that if it were to assume $3.40 a gasoline, the industry could easily reach 35 mpg by 2015. NHTSA should regulate on the basis of reality, not fantasy.  We need more cars sooner that get better gas mileage. Tell NHTSA that Detroit should speed up their manufacture. 

Auto-making communities and workers, as well as  auto drivers, are paying dearly for Detroit's fuel obsession with high-markup, technically outmoded, behemoth trucks and SUVs. Our economy has been devastated by Detroit's admitted assumption that gasoline could "never" cost more than $2.50/gallon -- we shouldn't condemn ourselves to another decade of avoidable pain and inefficiency -- the world can't afford it.