Another Perspective

Guzzler-Powered Green Cars

No one wants to know how the automotive market actually works.

By 4.11.08

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If you're an environmentalist-type who likes "green" cars, be grateful for gas hogs -- in particular, large SUVs and pick-ups.

Their fuel-guzzling, planet-despoiling ways may offend you -- but without the huge profits they've earned the automakers who build them, there would be a lot less loose change available to research new alternative fuels technologies -- or more to the point, to subsidize the production of hybrids like the Toyota Prius.

Toyota -- maker of the Prius, the world's first and most successful hybrid gas-electric car -- doesn't make a penny on the things. Each one is reportedly sold at a slight loss to the company -- even today. On the other hand, Toyota -- like GM, Ford and other automakers -- makes a tidy profit on its large trucks and SUVs. How much? About $6,000 per full-size SUV. Small economy compacts, on the other hand, are what is known as "loss leaders" inside the industry; despite their great gas mileage and the fact that they are sold in large numbers, the profit per car is typically $1,000 or less.

The big money is in big vehicles.

Take that profitability away -- for example, by mandating that all new cars reach a "fleet average" of 35 mpg, as our congressional solons recently decreed -- and you have kicked the legs out from under the automakers. And made it a whole lot harder to justify building more cars like the Prius.

It's like health insurance, in a way. The healthy people who don't file big claims make it possible (via their premiums) to provide for the care of those not so healthy. Take away the source waters, so to speak, and the well soon dries up.

You may not personally like big trucks or SUVs -- but many people do need them (and others just want them, which you'd think would be okay in a supposedly free country). Penalizing the automakers for adjusting their supply to satisfy the market's demand via top-down ukase from Washington makes about as much sense as harassing ice cream parlors for dispensing triple scoop hot fudge sundaes instead of bran flakes.

People want what they want -- and businesses function by catering to those wants.

That's the way the system works.

To expect businesses -- whether they make cars or hot fudge sundaes -- to devote resources to products that don't make them money is to ask them to commit economic hari-kari.

Bill Reinert, Toyota's national manager for advanced technologies, asks, "Without these profits, where does the investment capital come from for our research on plug-ins or fuel cells?"

Where, indeed?

Will the government step in to provide the funds lost courtesy of its bureaucratic do-gooder legislation? OK, but where will those funds come from? There's not much profit in government; it merely consumes that which it collects from the productive economy. Are taxpayers to be hit up for the necessary funds to subsidize ongoing development into fuel cell, advanced hybrid, and other not-yet-commercially workable technologies?

Would you rather it be a tax hike on you? Or a voluntary tax on your neighbor who chooses to drive a large SUV?

Somebody's got to pay -- if we don't want all these "green" technologies to die on the vine.

Right now, the people footing the bill are those who are buying big SUVs and trucks -- to the tune of $6,000 or more per person. That's a pretty hefty self-tax -- and hey, it's going toward a cause the "green" folks ought to be pretty pleased about.

If I were a Prius driver, I'd want Toyota to sell as many Tundras and Tacomas as possible. Does it make sense to kill the goose that lays the golden green egg?

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About the Author

Eric Peters is an automotive columnist and author of Automotive Atrocities: The Cars You Love to Hate (Motor Books International) and a new book, Road Hogs.