No Place for Government in Car Business

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Published December 06, 2011

| FOXBusiness

The government should get out of the car business.

The “Cash for Clunkers” program -- one of its first economic programs -- was deemed a success by the administration. The government claims 690,000 cars were sold under “Cash for Clunkers” -- taking into account cars that would have been sold anyway. Looking back we realize that only 125,000 cars were sold due to program incentives that would not have been sold as a normal course of business.

The almost $3 billion spent on clunkers -- or $3,500-$4,500 per car for consumers -- equates to $24,000 per car that was sold as a result of the “Cash for Clunkers” program as reported by Edmunds.com. I would hardly call this a success.

But “Cash for Clunkers” is a bargain to taxpayers compared with the electric car incentives being offered by federal and state government.

I am for electric, natural gas, hydrogen and alternative energy cars, however this program is both short-sighted and a massive waste of taxpayer money.

Consumers get $7,500 in incentives to buy an electric car from the federal government; the state governments give an additional incentive worth several thousand more in most cases. JD Power has estimated that the incentive creates an additional 10% of buying, which means that 90% of the cars would have been bought without incentives -- but we incentivize that 90% anyway as part of program. 

So, 100% of cars are incentivized to get us the extra 10% in sales, which means we wasted 90% of incentive money and the part that is increased (the 10%) is increased because of the incentives. This gives us a price tag to taxpayers of $75,000 per car, not including the state incentives. 

For example, if 10 cars are sold and nine would have been sold anyway, regardless of incentives buyers received, then we have given out $75,000 in incentives ($7,500 per car times 10 cars sold). However, since the incentives only increased sales by one car it means we have spent $75,000 to get one extra car sold. Let’s say it is 50% of cars that wouldn't be sold -- that still comes to $37,500 per car -- not counting state incentives.

Despite the incentive the electric car is slow to be adopted. The Chevy Volt sold 1,139 cars last month and total electric car sales between the Nissan Leaf, Volt and others will be under 20,000 cars this year.

Chevy Cruz and Sonic, two fuel efficient cars, sales were up 54% last month. Chevy’s best selling pickups, the Silverado and Sierra, were up 34% and 22%, respectively. GM is managing to sell cars, just not electric cars -- despite the fact that the Volt gets the highest customer satisfaction report from Consumer Reports

President Obama’s plan to have one million electric cars on the road by 2015 will fall well short of that goal because you cannot incentivize enough people to buy cars that they don’t want. The price of the Volt at $40,000 is $7,000 more than the Leaf and $17,000 more than the Cruz.

I believe the electric car is part of the future, so the question is how to spur widespread adoption?

The answer is found in solar panels. Solar City is doubling the amount of residential solar panels by installing 160,000 solar panels on military bases hiring 6,000 veterans to do the work at no cost to the taxpayer. Forget subsidies, Solar City is putting the solar panels up as a lease -- no money upfront -- and will cause a doubling of installations in the US and a reduction of electric bills for our military.

There are more than 13,000 taxis in NYC with more than 40,000 cars for hire in the Big Apple,  not counting federal, state and city cars along with mass transportation vehicles.

If you want economies of scale mandate that all government controlled cars or transportation cars, when replaced, be replaced with an alternative energy car (natural gas, electric, hydrogen, etc). This creates widespread adoption immediately and also levels the playing field to whatever technology works best.

As we have seen with Solyndra, our government has a hard time picking winners and losers -- let the market do it. We could get to scale on alternative energy cars a lot faster if all government that can be would be replaced with something other than a pure fossil fuel vehicle. And mandate that all cars controlled by the government with licenses, notably taxis, will have to be alternative energy cars when replaced.

We can either get to scale like Solar City did with solar panels in a sensible way. Or, the government can keep handing out ridiculous subsidies, like $75,000 per car of taxpayer money. This is an easy choice in my opinion.

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