Tuesday, December 05, 2006

Hybrids: wrong approach

According to this report in the SF Chronicle, sales of hybrid autos have fallen sharply since August. The reasons? Falling gasoline prices, a smaller tax credit on the most popular models, and a shortage of stickers that allow them to drive in carpool lanes in California.
Hybrids accounted for 1.77 percent of all vehicle sales in August, but only 1.52 percent in November.
Despite the slowdown in sales, we're not seeing price cuts for hybrids (around $26,000 for a Toyota Prius and $23,000-plus for a Honda Civic). That could change, acording to the story, if inventories start to mount.
The aspect of the story that the story itself slights is the idea that very few hybrids indeed might be sold if there were no tax credit. The feds extend a tax credit (more valuable than a deduction) to hybrid buyers, but it starts to phase out once a manufacturer has sold 60,000 units. The amounts are not negligible. Toyota Prius buyers got a $3,150 tax credit in September, but that shrank to $1,575 in October.
I have nothing against offering hybrids to the buying public and even have a certain sympathy with the idea. But at this point they are more expensive than a comparable internal-combustion auto. Giving a tax credit means that people who choose not to buy hybrids are forced to subsidize those who do.
I'm pretty sure that eventually something more efficient and more environment-friendly will replace the internal-combustion engine. It is more likely to happen, not less likely (though it may take a bit longer), if the government doesn't try to "force" the market through interventions like subsidies or special taxes.
Ethanol, for example, is in fact a poor candidate and would probably not even be in the running if not for taxpayer subsidies that enrich Iowa corn farmers, Archer-Daniels-Midland and various oil companies. But it's diverting attention and resources away from the search for a genuinely superior alternative. Hybrids might well turn out to be that superior alternative, but we'll be less sure of it than we would otherwise be because of tax credits distorting the feedback mechanism of the market.

1 comment:

Steve Bock said...

What do you think the next type of vehicle propulsion will be? What alternatives have you entertained, and what do you think is the best?