By on May 6, 2007

nhtsa3.jpgOn Friday, Senator Carl Levin condemned a draft Commerce Committee bill revising federal Corporate Average Fuel Economy (CAFE) standards. The bill would raise the required average to 28.5 mpg by 2015 and 35 mpg by 2020, with four percent annual increases thereafter. The Michigan Democrat threatened to filibuster the bill. In fact, Levin should shut the Hell up. If passed as is, the Commerce bill would create The Mother of All Loopholes. 

Part of the proposed Commerce bill directs the National Highway Safety Traffic Administration (NHTSA) to change passenger car fleet averages to a system based on a given vehicle’s “footprint” (wheelbase times width divided by 144).

To understand the implications of this change, consider the impact of the same “reformed system” on light truck CAFE standards, which take effect this year (albeit on an opt-in basis until 2010).

Light truck footprint-based fuel economy standards are based on a sliding scale. Simply put, smaller vehicles must be significantly more frugal than big ones, and every light truck within that spectrum must meet a size-specific mpg target.

But there is no requirement to create a mix of vehicles whose combined fuel economy adheres to a federally mandated overall average. In other words, according to the new rules, the sliding scale IS the Corporate Average Fuel Economy standard, NOT a manufacturer's fleet-wide light truck average.

The change has freed light truck manufacturers from any obligation to build a “mixed fleet” of vehicles that meet an overall fuel economy average. I repeat: Ford, GM, Dodge, Toyota, etc. can build any size truck they like as long as it meets its size-specific fuel efficiency target. 

If cars switch to this same system, they’ll be subject to a similar curve as their light truck counterparts: small cars will have to meet much higher fuel efficiency standards than mid and large-sized cars. And domestic manufacturers will be under no obligation to build a mix of vehicles that achieves an overall average. As long as any given passenger car meets the appropriate size-related standard, they’re good to go. 

The United Auto Workers (UAW) appreciates the enormous implications of this rule change. The UAW’s legislative director told the House Commerce committee that his employer vehemently opposes changing passenger car CAFE requirements to a footprint calculation. lan Reuther said the move would lead The Big 2.5 to completely abandon the small car market to foreign manufacturers (eliminating union jobs in the process). 

True dat. It’s an open secret that Detroit only makes econoboxes to meet CAFE standards. They’re a “loss leader” that allows them to sell large, large-profit vehicles. Without a federal obligation to build uncompetitive, unprofitable small cars, Detroit would cut bait and fish.

And if you thought that higher CAFE standards would lead to more people buying smaller cars, think again. In fact, basing standards on vehicle footprints could lead consumers in the opposite direction.

In a document outlining the impact of “reformed” standards on light trucks, the Department of Transportation noted “Downsizing of vehicles is discouraged under Reformed CAFE since as vehicles become smaller, the applicable fuel economy target becomes more stringent.”

If that doesn’t make the new bill on federal fuel economy standards all Detroit’s Christmases rolled into one, the new proposed CAFE legislation also includes a "get out jail free" card: NHTSA can lower fuel economy mandates if the agency determines they’re not “cost effective” or “feasible” in a given model year.

It’s a mostly forgotten fact that Congress has already charged NHTSA with setting CAFE standards. They’re supposed to do so at the “maximum feasible level” according to “economic practicability, technological feasibility, the effect of other standards on fuel economy and the need of [sic] the nation to conserve energy.”

Obviously, Congress has usurped NHTSA’s authority. Worse, the new proviso or “off ramp” turns NHTSA’s theoretical CAFE evaluations into an all-too-real politically-charged adjudication.

When an automaker or group of automakers ask the agency for a CAFE wavier based on poverty or technical challenges, how would NHTSA make its decision? Does Congress seriously expect NHTSA to examine an automaker’s books or R&D labs to determine whether to waive CAFE compliance?

But wait there’s more! Under the proposed legislation, Detroit automakers would be able to use CAFE credits to meet fuel economy mandates for five years (two more than currently). AND they’d be able to buy and sell credits amongst fellow manufacturers.

I’m having trouble getting my head ‘round all this. Unless the Senate strips off all these little goodies, Detroit’s bitching about a federal bill that will nearasdammit remove their unprofitable CAFE commitments.

Perhaps they’re getting the media to focus on illusory CAFE numbers so they won’t consider the fine print that renders them largely meaningless. Is Detroit really that devious? If they are, how did they get themselves into this mess in the first place?

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68 Comments on “The Truth About NHTSA’s Revised Corporate Average Fuel Economy Figures...”


  • avatar
    SherbornSean

    Great editorial! Hard to believe that Congress would be enacting legislation that actually raises petroleum use, but you know that old saying in politics:

    “What’s good for Haliburton is good for America!”

  • avatar
    philbailey

    Wow. If this means that Alfa Romeo and Renault can come back in and if 75 mpg small diesels from Europe are to be encouraged, than let the games begin. I’m all for it.

  • avatar
    shaker

    This sounds like another Bush “energy initiative”. Ostensibly, a step forward; really, two steps back. Written (with much love) by special interests. Lord, I hope Congress sees it for what it is — a Shell (sic) game.

    If it somehow sneaks through, you’ll see 4500 lb SUV’s with “5-Star” fuel economy ratings…

  • avatar
    troonbop

    Detroit alone might not be that devious, but given help and advice, hey, the sky’s the limit.

  • avatar
    starlightmica

    Let me guess – the E85 loophole remains untouched, end result being an opening big enough for a car carrier full of Escalades and Navigators onboard.

  • avatar
    thx_zetec

    Farago

    Thanks – this is what TTAC does best, and what mainstream media does worst. Get to the bottom line – also kudos for not getting too bogged down in details.

    To anti-republican comments: swing away, they deserve it *but* like many other forms of federal idiocy this is a bi-partison operation (see ethanol pork barrel). Virtually no politician wants to accelerate the bankruptcy of any US maker, and the health of the big 2.5 is based on vehicles with poor fuel economy.

    US citizens are mad as heck they want higher fuel economy, absolutely. Except they still want to sit 6 feet above the pavement. Oh, and go 0-60 in 6 seconds. Oh, yeah, drive a “safe” (>5000 lb) vehicle. If anyone here can write a law to meet this list of demands I’d like to see it.

    Imagine a car company that spends millions to make a better, smaller car. They simply get put in the tougher category! Instead millions will be spent to beat the loop-holes; imagine just missing the target – what do you do? Simple, bigger foot-print make the car “wider”, maybe will see plastic side-extensions on cars similar to radio towers used to make the “tallest” skyscrapers.

    Imagine someone driving an 15mpg SUV lecturing a 30 mpg small car buyer “buddy, I’m doing my part to cut our oil consumption, my Behemoth_GT beats its category goal. Your car should be getting 32 mpg!”

  • avatar

    Some interesting side effects: Full size pickups will have different mileage targets based on their wheelbase. So a short-bed, standard cab pickup will have to meet a higher mileage standard than a crewcab long-bed truck of the same model with the identical drivetrain because the standard cab one will have a much smaller footprint. Guess which one they're going to concentrate on building? On the car side (assuming cars will follow the same general guidelines as trucks) an Aveo, a MINI, and a Corvette will all have the same target mileage because they all have the same footprint (within 1/2 sqare foot of each other). That means Chevy will have to really improve Corvette's mileage rating OR cut Corvette sales drastically OR push a helluva lotta Aveos out the door to raise the average for that size footprint. AND the Miata's target mileage will be consideribly higher than the Aveo's because its footprint is 7 square feet smaller. My brain aches from reading the 350+ page explanation of the reformed truck standards. Does this make sense to anyone? If someone can explain why anyone would think it's a good thing, please contact me!

  • avatar

    starlightmica: Under the new bill, after the 2009 model year, automakers would lose the fuel economy credit for E85 vehicles.  (The current system allows for a credit of "up to 1.2 MPG for producing dual fuel or “flex fuel” vehicles that can run on something other than gasoline.") Again, the bill allows them to "bank" these credits for five years. And something tells me the corn growing states may protect the existing measure. thx_zetec: Your boasting scenario is actually very close to the truth. The new bill would require a new labeling program to identify vehicles with "best-in-class" fuel economy and lowest greenhouse gas emissions.

  • avatar

    starlightmica: Let me guess – the E85 loophole remains untouched, end result being an opening big enough for a car carrier full of Escalades and Navigators onboard. Currently, the E85 CAFE credit program is due to expire in 2010. Whether or not it does depends on Congress. It's interesting, though, to see the dichotomy this loophole creates. The greenies admit it actually leads to increased gas consumption because the advertised fuel mileage is a lot higher than you get on gasoline and E85 isn't widely enough available to make a difference. On the other hand, if the credit wasn't there, the manufacturers wouldn't have any real incentive to build E85-compatible vehicles and E85 would die a quick death. So… do they continue a policy that actually increases gasoline consumption to keep E85 in the public eye? Or do they let it go away knowing that the manufacturers are using it as a CAFE loophole but realizing without it there's no longer an incentive to produce E85-compatible vehicles?

  • avatar
    thx_zetec

    Let me step in and defend these regulations and the people who wrote them.

    They look stupid. But this just shows the silliness of “CAFE” laws. They all end up numbingly complex, and drivers will always find a way around them.

    Imagine you simply say “all cars same rule”. O.K. what about pickups? A Ford F250 is actually more efficient than a Honda Civic hauling cinder blocks (either vehicle works, but Civic uses more gas to move a ton of blocks). So you need Ford F250’s. Then people will simply use Ford F250’s for personal transport (this already is common, and is actually encouraged under the “Hummer tax break”). At this point some will say “well, then the law will have a clause to prevent people from driving F250’s for personal use”. Soon you’d have a 10,000 page law that required big brother enforcement and still would not work.

    So lawmakers should be thanked. They were asked to do the stupid (ignore market forces, produce “feel good” law) and they did it.

  • avatar
    blautens

    With $3.00 a gallon gas averages in the nation (it’s closer to $3.30 here) I’m hoping that people naturally purchase more economical cars, and that manufacturers respond to that by making efficient and desirable vehicles of all types.

    I’m hoping that the marketplace does what our special interest controlled government cannot.

  • avatar

    Tomorrow, we’ll have an article arguing that the whole system needs to be junked.

    Watch this space.

  • avatar
    Steven Lang

    Mr. Farago thank you VERY much for writing this article. If it were in my power I would put this on the front page of Yahoo! or perhaps another portal that’s already too heavily dependent on the vapid AP news releases.

    The NHTSA proposal is just as morally bankrupt as our current tax code. In essence, the fellow who decides to buy a more fuel efficient car will simply bear the burdens of those who simply don’t give a damn. That’s not right.

    If Congress and the NHTSA truly cared (yeah, right) about this issue, and understood the importance of free markets towards solving it, they would move towards proposing legislation that allows consumers to have more choices and arguably better alternatives.

    1) Create a task force within the NHTSA whose responsiblity would be to unify the safety, specification and emissions standards of cars and trucks between the US and EU, Korean, and Japanese automakers by 2010. They should also seek to replicate this goal with Indian, Chinese and Southeast Asian manufacturers by 2012.

    2) Provide waiver that would allow automakers whose vehicles get 35 highway mpg or more to enter the US market by 2008 with the understanding that they would have to reach the aforementioned standards by 2010. A minimal safety, spec and emission standard from the EU, Japan, or Korea would also have to be attained as well.

    3) Require that ALL gas retailers provide diesel, E85, and biodiesel offerings. You can have a sliding scale for this, say 30% must offer diesel for 2008, 20% biodiesel, and 20% for E85 by 2008. Then encourage incremental so that all gas stations offer these alternatives by 2012. One of the biggest failings of our current legislation for alternative fuels is that the supply is virtually unavailable to those who would like to use these fuels.

    Asa far as I’m concerned, the biggest problem with the current state of affairs is that the free market is getting absolutely squashed by oligopolies who have the legislators in their back pocket. If our country would WAKE UP and create a legislative system that is more merit-based, we probably wouldn’t need to be bashing the NHTSA and Congress for their unique self-interests.

  • avatar
    dwford

    Sounds like a law for the automakers to love, but consider: if gas is $4.00 a gallon, does it matter that the Sequoia meets the new fuel economy rules when it only gets 14mpg?

    Customers will buy what they feel comfortable driving, considering all the parameters. If gas prices drive customers to smaller vehicles, but the manufacturers are producing larger ones because of the law, where does it leave us? Customers focused on economy will buy the small cars, and manufacturers that don’t produce them will be left behind.

  • avatar
    ejl

    “if gas is $4.00 a gallon”

    At that point, the U.S. manufacturers, having once again propped their entire product line on a perverse set of short-term, anti-market CAFE-induced incentives, will suffer a huge downturn in fortunes as they are, once again, upstaged by the rest of the world’s fuel-efficient, desirable cars.

    It will be 2006 all over again, IOW.

    Knowing that Detriot lobbyists are behind this nonsense, I’m starting to actually want to see the big 2.5 go under.

  • avatar
    thx_zetec

    Stephen Lang:

    What you propose is even worse.

    “Require that ALL gas retailers provide diesel, E85, and biodiesel offerings”

    So you want the feds to regulate what fuels are sold? Didn’t you say you wanted competitition based on merit? This is the worst of centralized planning, didn’t work for the Soviet bloc and won’t work for us.

    You talk about competing on merit – let me ask: if ethanol and biodiesel are so great, why do they need huge subsidies and mandates?

    And what other alternatives – how could they ever succeed when voters, I mean lobbyists – run our economdy? What about butanol, which can also be produced from bio sources and has many advantages.

  • avatar

    CAFE has always been ridiculous, as it forces manufacturers to find ways to sell people vehicles they don’t really want to buy.

    It’s much more simple and effective to shape demand than shape supply. Put a tax on oil, and there’d be no need to mess with CAFE, ethanol subdisidies, and so forth.

  • avatar

    On the bright side, vehicles tend to look best with long wheelbases and tight overhangs, and this new CAFE setup would have that result.

  • avatar
    rashakor

    It is funny, but I think this law will have exactly the opposite unintended effect that it is trying to have.
    This legislation is clearly written in a way to protect Gas-hogs manufacturers such as our beloved 2.333. However, by finally encouraging more oil consumption and locking domestic manufacturer in making energy-guzzling behemots this law will come back in 2012 with a clear vengance… I let you imagine… the fate of USA makers. Deathwatch anyone?

  • avatar
    starlightmica

    Robert, Frank:

    Thanks for the E85 clarification. Then again, with celluosic ethanol “just around the corner” there someday might be a reason to but this in.

    Does the new law separate continue to separate MPG averages for domestic/NAFTA and import, like what CAFE does (I think)? Currently, Aveo and Corvette can’t offset each other. Also, does this mean future sports cars could have ridiculously long wheelbases?

  • avatar

    Recessed door handles here we come…
    RF, great article. For the Canadian readers this doesn’t seem to work well with the new feebate program…it looks like they’ll be raking in alot of money if this bill is adopted in the US.

  • avatar

    So it’s still true: Do not ever ask a bureaucrat for directions.

    These behind the scenes maneuvers will only work if Americans collectively lose their minds and begin believing that low mileage is a good thing. The law is about ten years behind people’s mindset on what makes a car good these days. Honda must be smiling.

  • avatar

    Robert – Great article; virtually all of our laws are written in the same kind of kaleidescope which makes sense only after one or two tabs of DC psychedelics. The fundamental problem is that our lawmakers have only ONE job, and that is to be reelected; given the current ‘just like soap’ marketing and the public’s willingness to be ignorant of what their elected representatives (of any party or stripe) are doing, we just continue to get “the best government money can buy.” It is obscene, but most of America sits back fat, dumb and happy, believing the marketing without taking the time or energy to understand what is really going on.

    GM, Ford and Chrysler have all arrived at their current critical position through the pretense of “free market” forces which are in reality ruining their long term prospects. They’re like children who get to influence the rules that mommy and daddy enforce, and of course choose the ones which are most comfortable and bring them the greatest gratification in this moment. And, like uncontrolled children, they suffer from the lack of control over their behavior. Imagine if “the kids” changed the law so that five year olds had the right to drive; we certainly wouldn’t want to discriminate based on age and mental maturity.

    It doesn’t matter whether peak oil happens this year or ten years from now, true national security requires that we develop technologies which will allow efficient transport at the time that oil becomes scarce enough that it is priced beyond the needs of a world depends on moderately priced energy to maintain economic viability.

    The solution is simple, if unfortunately politically suicidal. Add an additional and increasingly stiff Federal tax to gasoline. Then use the money for a national R&D program as disciplined as that for new weapons systems. People will still be free to buy whatever they like, but will tend to drive the tool most suited to the job. F250’s and Hummers won’t disappear from the landscape, but people will drive them when they truly need to carry a ton of concrete or travel off-road. Motorcycles and other high efficiency vehicles will become the tool of choice for commuting.

    Without planning of this kind, we are on our way to becoming a third-rate economy, and the car companies, like the steel companies before them, are the dying canaries in our coal mine.

  • avatar
    Paul Niedermeyer

    These new regs remind me of the federal tax code. Similar logic.

  • avatar
    miked

    Should the government even be involved? I don’t think so. There were already a few post above alluding to the fact that people will buy what they’re comfortable with and if gas prices skyrocket, then people will want efficient cars regardless of their footprint. Who cars if the government makes some asinine regulations relating the gas mileage target to the footprint. If a person needs/wants a car/truck/suv of a particular size, then the higher mileage vehicle will probably be more desirable (all else being equal). So with or without the law, the market will put pressure on increasing mileage.

    My take on why Detroit is against the change is that it actually reduces the barrier to entry. Remember, big existing companies secretly want convoluted regulations because it makes it harder for someone else to enter the market. That’s why we have all kinds of safety legislation, it’s not to save the children, it’s to make it prohibitively expensive for a potential competitor to enter the market. So with this new legislation a new large vehicle manufacturer (the only place where Detroit has a hope of competing) can enter the market with fewer issues than the current CAFE standards.

    We’ll all (as consumers) be better off if the government would just say out of our life.

    Mike

  • avatar
    UnclePete

    thx_zetec wrote:

    Imagine a car company that spends millions to make a better, smaller car. They simply get put in the tougher category! Instead millions will be spent to beat the loop-holes; imagine just missing the target – what do you do? Simple, bigger foot-print make the car “wider”, maybe will see plastic side-extensions on cars similar to radio towers used to make the “tallest” skyscrapers.

    When I read this, for some reason I thought of the AMC Pacer! Interestingly, its design was a response to changing goverment safety rules of the time (some of which were reduced quite a bit by the auto lobby)

  • avatar
    cheezeweggie

    A simple solution to the problem is to allow the auto manufacturers to build whatever they want. With the proce of gasoline exceeding $3/gallon, the majority of consumers will be financially motivated to buy smaller fuel-efficient vehicles. The big 2.25 will continue to make fuel sucking pigs for an ever decreasing market segment. Eventually the big 2.125 will be financially motivated to manufacture or import fuel efficient product. A simple market driven solution that Americans can swallow.

  • avatar
    thx_zetec

    Starlightmica

    You use the phrase “cellulosic ethanol just around the corner”. Don’t be so sure.

    Currently cellulosic ethanol is much more expensive than corn ethanol which is much more per mile than gas (Brazilian sugar based ethanol is cheaper but is kept out to protect high cost US producers).

    There is no guarantee that cellulosic ethanol will ever be competitive without even bigger subsidies. The fact that cellulosic ethanol research is mostly subsidized tells me it might never work.

    Cellulosic ethanol is provided as an excuse for corn ethanol. “OK Corn ethanol is a boondoggle but it will pave the way for cellulosic ethanol”.

    Don’t count on it.

  • avatar
    jaje

    Right now we are trying to manipulate supply in order to change demand. The only way you can guide a market based economy is to change the demand. The easiest and most economical way to influence the market to drive smaller more fuel efficient cars is increase the price of gas artificially using a federal tax (use the proceeds of this higher tax to fun hydrogen research or other alternative fuels). The majority of consumers will no longer afford the big gas guzzlers and will actually want to buy smaller cars. Of course this is political suicide but we all know our elected politicans careers and supplemental incomes from nefarious sources are more important than our countries sustainability.

    History is the best lesson as CAFE ratings have really done little to truly shape demand. MFGRs do the cheapest easiest way to avoid these penalties (such as making flex fuel vehicles which get a higher CAFE rating but in reality get lower mpg if running on ethanol blends), plus the fact that there were less than 1,000 stations in the mid west for the past 10 years. The consumer’s habits have hardly changed – it is only the games the MFGRs played that CAFE really did. When gas prices skyrocket the market responds naturally by buying more fuel efficient cars and hybrids. If a family truly needs a larger vehicle (3+ kids) they can apply for a tax relief subsidy based on their gas spending bills.

    Keep gas near $4 a gallon and you will see renewed and natural invigoration from MFGRs to supply vehicles a market demands (rather than be forced to create oversupply and sell at a loss).

  • avatar
    Hippo

    In a way it is funny to watch bought politicians in a intellectual race to the bottom while blowing smoke up the sheeple’s arse.

    DOE and the military are fully aware of Peak Oil but these guys rather game the system and scam the sheeple then go to work. Too bad they forget the details, the people that can easily afford $4.00 and $X.00 gasoline very rarely drive domestic cars.

    I think the school system in the US is working as designed.

  • avatar
    ejl

    In case the current proposal isn’t enough of a loser, there’s an interesting recent study from Stanford comparing the economic effects of CAFE with the effects of a higher federal gas tax:

    http://www.stanford.edu/~mrj/Jacobsen_job_market_paper.pdf

    Among the findings:
    – foreign luxury car manufacturers like BMW and Acura are hurt least by higher CAFE standards.
    -U.S. automakers have to make the largest, most costly adjustments as a result of CAFE changes.
    – After one year, higher gas taxes would incur about 1/20th the overall economic burden that higher CAFE standards would.
    – After 10 years, higher gas taxes would incur about 1/6th the economic burden of higher CAFE standards.

  • avatar

    thx_zetec: Simple, bigger foot-print make the car “wider”, maybe will see plastic side-extensions on cars similar to radio towers used to make the “tallest” skyscrapers.

    At least they had sense enough to keep that from happening. The “width” calculation is based on the track of the car, measured at the wheel’s midpoint. The claim it’ll cost so much to change the track or wheelbase that they won’t have to worry about anyone trying to manipulate the numbers.

    Yeah. Right.

  • avatar
    50merc

    Golly, why would Frank Williams have any doubt about the “claim it’ll cost so much to change the track or wheelbase that they won’t have to worry about anyone trying to manipulate the numbers”? Well, perhaps he knows how pre-war Willys, struggling to compete with much richer and bigger competitors, lengthened its car’s wheelbase two inches by simply mounting the rear axle further back on the leaf springs. An easy and cheap fix! (Though it did make the rear wheels look oddly off-center in the fender openings.)

    My vote is with those who favor letting the market work (as it already is). Way back when Congress was considering legislation to regulate railroads (then powerful and much-hated), a lobbyist for the industry secretly advised his clients to not fear the proposal. He assured them that in time the regulators would become protectors of the industry. It brings to mind the present-day FDA, which stubbornly insists that if we buy cheaper medicine from Canada we’d be exposing ourselves to dire health risks from unregulated (by FDA) drugs. Funny, I haven’t heard about Canadians dropping like flies as a result of toxic pharmaceuticals.

  • avatar
    philipwitak

    re: “Keep gas near $4 a gallon and you will see…”
    jaje: May 6th, 2007 at 12:38 pm

    mission accomplished, here in san diego. in past two days i have seen several stations with premium priced at $3.80/gallon and recently heard broadcast comments that forecast prices above $4.00/gallon by summer.

  • avatar
    jkross22

    I find it disturbing that those recommending a tax increase put so much faith in those dollars being used for that purpose. We have a plethora of examples (toll road proceeds and gas taxes for road improvements, social security taxes, telecommunication taxes, property taxes for improvement of schools, etc) at both state and federal levels where money that was supposedly earmarked for a specific purpose “mysteriously” got moved to some general fund to be spent on whatever pet/pork projects are called for at the time.

    Those advocating tax increases or new taxes today will again be disappointed by what is done with that money. Let’s not repeat the same mistakes again.

    jkross

  • avatar
    dean

    Yesterday I filled up my bike with Premium at CDN$1.36/litre (in Vancouver, BC). At current exchange that is US$4.60 per gallon. (Fortunately I can get away with mid-grade in the bike, but I use Premium for the first tank of the season.)

    Many readers here favour a free-market solution to improving fuel economy. I agree, and think any supply-side tinkering is a foolish waste of money and resources.

    Where I differ, however, is that I don’t believe we currently have a free market. That is, the price of fuel at the pump does not include the external costs of its consumption. Road construction and maintenance, bridge construction, traffic signals, lost productivity from people killed or injured in vehicle accidents, the provision of emergency services to traffic accidents…. These are costs that are passed to other payers, be they municipal or state/provincial governments, etc. Gas tax revenue covers only a small portion of the total burden; the remainder is paid from general revenues (income taxes, sales taxes) by people who may not even drive.

    I would advocate a tax shift (no net increase for an average citizen) towards consumption based tax for fuels. Those that choose not to drive, or who drive less, or choose a more fuel efficient vehicle will see a net increase in income. Those that choose less efficient vehicles may still do so, but at least that choice is made on the basis of a more fully-accounted cost.

    At $5/gallon you will find that people’s perception of their “needs” in a vehicle will change dramatically.

    Unfortunately such a move is politically unpopular. An extra $1000 take-home spread out over a year isn’t as in-your-face as an extra $20 per week out of pocket at the gas pump.

  • avatar
    dean

    Drew – I just read your comment in the Audi 5000 comments. Honestly, I wasn’t copying you!

  • avatar
    jthorner

    CAFE was a bad idea from the start which has become a failure as the mfgs. learned to game it. These new rules only make the game more convoluted.

    If you want to discourage fuel use, then tax the ____ out of it. Everything else is just the politics of illusion.

    The biggest argument against fuel tax increases is that they might fall excessively on the poorest members of society. There is an easy fix for that. Use the increased fuel taxes to dollar for dollar decrease sales taxes. Everyone pays sales tax, even though who can’t afford to drive a car. Here in Northern California a sales tax increase is being used to pay for mass transit and road upgrades. How stupid is that? They should have increase the fuel taxes enough to pay those costs, not the general sales tax. Dumb.

  • avatar

    Higher gas taxes is the quicker easier way to modify consumption but I find it ironic that politically the traditional champions of the poor, the “Democrats” are in favor of a tax that would primarily effect the poor and working class.

  • avatar
    jthorner

    …. champions of the poor, the “Democrats” are in favor of a tax that would primarily effect the poor and working class. ….

    Which is why I say to reduce the sales tax dollar for dollar (not % for %) to shift the cost burdens onto fuels and off general merchandise. Then the poorest of the poor would disproportionally benefit as many of the truely poor don’t even own cars. The wealtier people also generally own the highest consumption vehicles (Escalade, Hummers, M5s, V12 MBZ, etc.) and would be hit harder by increased fuel taxes. While implementing this, keep the exisiting sales tax rates on automobiles and anything else which burns fuels but lower it on everything else. Perhaps you could do away with sales taxes on shoes and clothing all together.

    Another possible good way to use increase fuel tax revenues would be to exempt the first $10k/year of income from Social Security taxes. These taxes are highly regressive as they hit the very first dollar of income and yet phase out above a certain income level.

    The regressive nature of fuel taxes is easily fixed, while the bizarre nature of CAFE and the proposed CAFE_2 is unfixable.

  • avatar
    jthorner

    The “width” calculation is based on the track of the car, measured at the wheel’s midpoint. The claim it’ll cost so much to change the track or wheelbase that they won’t have to worry about anyone trying to manipulate the numbers.

    That is so easy to change it isn’t funny. Just change the offset of the wheels and you can move the midpoint around. Suspension tuning might need to be changed, but that isn’t hard for the mfg. either.

    Already the trend is that each new generation of a model grows compared to the previous one. Today’s Honda Civic is a monster compared to the origincal Honda Civic of 1973.

    http://www.topspeed.com/cars/honda/honda-civic-history-ar15137.html

  • avatar
    ejl

    “The biggest argument against fuel tax increases is that they might fall excessively on the poorest members of society.”

    jthorner,
    FWIW, the paper I linked to above argues that the CAFE standards are actually more of a regressive tax than higher fuel taxes would be. The author argues that prior studies failed to take into account CAFE effects on the used car market. He finds that by the tenth year, CAFE standards triple the burden, relative to income, of low-income versus high-income groups.

    I don’t know whether he is right, but it at least shows that we shouldn’t take it for granted that a fuel tax increase would necessarily be more regressive than CAFE standards are.

  • avatar
    SunnyvaleCA

    I think the width measurement under new CAFE rules is taken from the center-point of one tire to the center-point of the opposite tire. So, I imagine we will start seeing cars with super-skinny rims mounted on spacers that are mounted on the axles. Then when you buy the car you throw out the wheels and spacers and buy real rims and tires. That could gain you several inches in the case of a sports car. A sports car with 165/60/18 tires is sure going to look funny before you replace with 285/35/18, though!

  • avatar
    starlightmica

    thx_zetec:

    Phrase was in quotations as I am in agreement with you. Sort of like how nuclear fusion as a viable source of energy is not too far off.

  • avatar
    Terry Parkhurst

    No wonder people are disillusioned about Congress. Here it is – both Democrats and Republicans – working to make something much more complicated than it needs to be, to reportedly achieve a goal that is illusory.

    The April 19, 2004 issue of Time magazine contained an essay entitled “The Case for a War Tax – on Gas” by Andrew Sullivan in which he argued that a $1 a gallon tax to pay down the enormous debt incurred by this (seemingly unnecessary) occupation of Iraq (for its oil-fields and that of neighboring countries) would be the fairest way to spread the pain; and most importantly, reduce oil consumption – whether it be in the guise of gasoline or diesel.

    I think that if this was ever passed – won’t hold my breath – it would need to allow two tiers, such as I hear tell they have in Europe: commercial truck drivers could buy diesel at a lesser rate than the average consumer. Since the average American foodstuff – think California lettuce and spinach – travels an average of 6,000 miles. So two tiers would be the only way to mitigate the pain of increased gasoline costs, to the working poor (who oftentimes have two or three jobs, making taking the bus an non-option).

    Would that buck a gallon hurt the Big 2.5 that the senator from Michigan seeks to enable? Well, in the short term, it likely would. But would it get us closer to understanding the reality that protecting the Middle East so we can have cheaper oil than the rest of the civilized world is costing us big bucks? That’s for certain.

  • avatar

    CAFE: Whatever.

    The West Coast will still buy Priuses and the East Coast will still buy Lexuses.

  • avatar
    tms1999

    This based on the premisses that CAFE actually works. But the pressure is on the manufacturer, this is odd at best, and stupid at worst.

    Shouldn’t we leave it to the market? Capitalism? Free market? If CAFE was really about keeping fuel economy in check, would not we just apply more pressure on the consumer (the one who actually make the choice of verhicle) as opposed to the manufacturer, whose incentive is to only build enough of a vehicle that will sell.

    Pessimists like me will tell you we’re running out of oil faster than we think anyway, we’ll never have cheap gas like we used to. CAFE or not, when everyone has to pay $5/gal I can see people (me included) naturally consider better mileage cars.

  • avatar
    50merc

    Look, it is impossible to jack up the cost of energy without some adverse effect on the economy. All the well-intentioned tax relief or subsidy measures just move around the effects and put government in the position of who deserves what.

    Taxation has been called the art of pulling the most feathers from the goose with the fewest squawks. We have a democratic political system that is extraordinarily sensitive to focused public inputs, so history suggests the most feasible approach is to nudge people to consume less oil with a host of measures, none of which is unpleasant or visible enough to cause a big howl.

  • avatar
    KixStart

    I’ve long supported an increase in a tax on oil – or at least on gas. And this needn’t hurt the poor, the poorest of whom don’t have a car and/or can’t afford the one they do have.

    The current gas tax is a joke – doesn’t even cover road construction. And it should, as it’s a great way of assigning the cost in direct proportion to use. It should be raised enough to build roads, provide other transport solutions and make a significant contribution to our defense cost, too.

  • avatar
    jthorner

    I sure hope Honda brings their clean diesel technology to the US soon. It makes much more sense than the overcomplicated hybrid solutions. The European Accord (Acura TSX to the US) already offers a diesel version which was tested at 52 MPG highway, 33 MPG city (after converting from the UK to US Gallon). This was a real world test by carpages.co.uk, not some EPA test sequence nonsense. 0-62 MPH in 9.5 seconds and a 131 mph top speed. All in all more than enough for any reasonable street legal driving needs and a far bit better than the Prius. With a diesel there aren’t questions about battery life and battery disposal nor is the available hill climbing power a function of just how long the hill is!

    http://www.carpages.co.uk/honda/honda-accord-review-part-1-16-04-05.asp

  • avatar
    mike_i_n_mich

    CAFE laws have always been a blunt instrument if the goal was to reduce fuel consumption and stretch out the supply of fossil fuel. The argument has now changed to reducing global warming. Fine, change the argument, but I personally liked the original reason, finding it immoral to burn off a few billion years of stored solar energy (sum ==> plants == > fossil fuel) in 300 years. The reason for this waste was that the price of oil was limited to the price of pumping, which bore no moral cost. The laws of supply and demand, and I beleive they are laws, work only when the price if right. It is up to the Democratic process to work via elected officials to add a social price to the price of pumping to achieve a social goal of the majority. There is a means to do this and it would cost a few bucks to implement. Simply increase the existing federal gas tax a buck or two or more per gallon. Congress prints out the new value in one paragraph of law, instead of a few trees for CAFE laws, and gas stations re-calibrate their existing computer programs to collect the tax. We could even have fun figuring out where to spend the money (National health care?). Note, a tax on all carbonbased fuels would be even more effective as it would go after electricity usage. This method of achieving the goal would have the following characteristics: –Be common with Europe, Japan and the rest of the civilized world. Gas taxes is why they drive small cars…duh! –Be an honest way to meet the social goal; the CAFE laws are also taxes but they make the automakers collect them and allow the the politicians to hide from the pain. –Be totally fair to domestic and foreign carmakers. Current CAFE was skewed dramatically against US makers as the discussion in the subject article eluded to when talking about US makers selling small cars at a loss. –Cause an immediate reduction of gasoline burning. The car fleet takes on the order of 10 years to replace. –Cause the following other synergistic ways to reduce fuel consumption: —Carpool to soccer games 40 miles from home. Better yet, play teams closer. —Find homes closer to work, maybe with people of color nearby. —Telecommute as much as possible. Combine trips to the store. —Buy smaller cars with smaller engines to save money on gas. —Accelerate slowly saving up to 20%. —Take vacations closer to home. —High School kids take the bus to school (available at the corner) instead of driving because it is "uncool" to take the bus for Juniors and Seniors (no kidding, true at our suburban school). —Combine trips to the store. —Walk. —Ride a bike for errands instead of driving 1/2 mile and then joining a health club to get ride an electric exercise bike. The list is infinite. The change will be fast and effective. We will be at European consumption rates in months. The consumers will demand the efficiency from the automakers instead of the gov't blunt and ineffective instrument. But what if the consumers object? Vote the lawmakers out? Well, that will prove that the consumers don't beleive in the cause. It will be up to the media and the gov't to convince the voters otherwise. They do it in Europe. This method would by 10 to 100 times more effective in achieving the goal of reduced gasoline consumption.

  • avatar
    Scorched Earth

    Great editorial! I understand where politicians are coming from…they want to vote in something that “sounds” nice for their consitutents…but the law would screw things up in the longrun. Pressure should be applied to the consumer, not the manufacturer…the choice is all really up to the consumer. The CAFE restrictions poorly attempt to make cars more fuel efficient per size, almost assuming that manufacturers are purposely holding back on how fuel efficient their cars are. Instead of CAFE, The Gas Guzzler Tax levied on consumers needs to be applied to light trucks as well, except for ones licensed as commercial vehicles (to avoid hurting businesses that rely on them). This would penalize those who make the decision to purchase an ineffient vehicle without entirely restricting their right to do so.

  • avatar
    Steven Lang

    To answer a few questions…

    First off, supply is a BIG reason why most folks don’t buy diesel vehicles. The overwheming majority of gas retailers and manufacturers in the North American market don’t offer them because (surprise?) because they’re in the classic catch-22 scenario.

    You can’t release a mass market diesel for car buyers if there’s no easy accesst o it. Likewise, the retailers won’t spread it around because fewer than 2% of the vehicles in the NA market are diesels.

    If you mandate that diesels are offered in a greater number of gas retailers, you get rid of the myth that diesel fuel is difficult to find. You also may help unravel the decades old leery eye many consumers have towards diesels in cars. Then again, that depends on whether the next generation of diesels are more marketable to the public.

  • avatar
    ZoomZoom

    Too much complexity from DC, like the tax code. I think it’s evil! We need a revolution. We need to kick ’em all out of office.

  • avatar
    durailer

    insightful editorial!

    I’d love to see how these new standards will wreak havoc with the laws of supply and demand. While Detroit’s econoboxes leave a lot to be desired, a Cobalt or Aveo is cheaper than a Civic or Fit, and if the big 2.5 abandon small cars altogether, there’d be a sizeable hole to fill on the entry-level market. Granted, Hyundai and Kia are doing a good job of that now, but the Chinese will inevitably get their foot in the door.

    As we’ve seen in the past, new cheap and cheerful competition can pull off a runaway success, forcing Detroit to get back in the business. It’d be a redux of Falcons and Corvairs to counteract Bugs and Coronas (assuming the big 2.5 will still be around).

  • avatar
    jthorner

    Diesel isn’t hard to find at all. Every large truck and most midsized trucks run on it. Super Duty grade pickup trucks are very popular with their diesel option. Fuel availability isn’t the problem, but car availability is a huge problem.

    The #1 reason diesel cars are not available new in the US is that current car emissions laws are designed around gasoline engine profiles and don’t allow for diesel engines. These rule are different for F250 sized and larger vehicles.

    Honda, VW and Mercedes have said that they have technology which will allow them to meet these rules.

    Current emissions regulations do not account for CO2 emissions at all. Thus an emissions rule which slightly lowers NOX at the expense of higher CO2 is the way it works today.

    Even the most radical environmentalists are finally starting to revisit their hatred of nuclear and diesel power.

    The law of unintended side-effect consequences is alive and well!

  • avatar
    Luther

    "Higher gas taxes is the quicker easier way to modify consumption but I find it ironic that politically the traditional champions of the poor, the “Democrats” are in favor of a tax that would primarily effect the poor and working class." The Democrats want to *EXPAND* the poor class who are their primary voting block. A $5 per gallon tax would help create a permanent voting majority of poor people for them. (See Europe) $8 per gallon gas ($5 tax) has not created viable alternative energy in Europe…I wonder why…. All it has done is to create a large class of tax-eating cafe-dwellers since working for a living is not worthwhile. If you play the welfare game properly, you can actually have a higher standard of living without having to be woken by a pesky alarm clock or have your party-time imposed upon. CAFE is laughable. Im looking forward to tomorrows editorial RF.

  • avatar
    taxman100

    Funny, as gas prices go up, people are buying smaller vehicles.

    If Congress wants us to use less oil, pull out of the Middle East – that would drive oil prices sky high as all the moderate Arab states are overrun by the crazies, who can add control of world’s oil in addition to getting the atomic bomb from Iran.

    An environmental wacko’s dream?

  • avatar
    logical

    One of the big problems with CAFÉ is that it was written by people who don’t understand mathematics, and the unit of measurement is the wrong way round. Bear with me while I explain this.

    The numbers used below are chosen for mathematical simplicity, but the principle is the same whatever numbers you use.

    Let’s say that the required standard is 25 mpg. Manufacturer A sells two models, both of which achieve 25 mpg, thus meeting the standard. Manufacturer B also sells two models, in equal numbers, one gets 20 mpg and one gets 30 mpg. The average for B is also 25, thus meeting the standard.

    These two fleets should use the same amount of gas, right?

    But suppose each vehicle travels 10,000 mile in a year – how much gas do the respective fleets actually use? Keep the sales volumes the same for all models – say 100,000 of each. A’s fleet requires 400 gallons per vehicle or 80 million gallons in total (10,000 divided by 25, times 100,000 times 2). B’s fleet of 20 mpg vehicles uses 500 gallons per unit, while the fleet of 30 mpg vehicles uses 333.3 gallons per unit. The total usage is therefore 83.3 million gallons (10,000 divided by 20 times 100,000) PLUS (10,000 divided by 30 times 100,000). This from the same fleet average mpg!

    Now let’s suppose manufacturer B’s 20 mpg beast gets bigger and heavier, so it now – shock horror – gets only 10 mpg (does this seem familiar?). To maintain the fleet average at 25, the 30 mpg model now needs to get 40 mpg. Suppose this is achieved. How much gas is now used? The answer is 125 million gallons!!! For the same number of vehicles, with the same CAFÉ average, to travel the same number of miles!

    At the extreme, one model getting 2 mpg and one getting 48 mpg (not impossible) would still average 25 but use 521 million gallons. If the 2 mpg model goes to 1 mpg (doubling its already horrendous usage) then the 48 mpg model only needs to get 49 mpg (which saves virtually no gas at all, since it is already hardly using any) and total usage is over one BILLION gallons – from a fleet that still meets the CAFÉ average.

    Why is this so? It’s because the measurement unit (mpg) is not soundly based. People don’t buy a certain quantity of gas and see how far it can take them. Rather, they have a certain distance to travel, and buy the gas that’s needed to cover the distance. So, the correct unit is the inverse i.e. gallons per mile, or gallons per 100 miles (4 gallons in this 25 mpg example).

    Under that standard, manufacturer B couldn’t get away with the misleading maintenance of a phoney average and would be forced to stop building/selling real gas guzzlers. With the 20/30 mpg fleet the average would be 4.166 gallons per 100 miles, thus FAILING the standard, and getting worse with the mpg changes mooted above.

    Of course, the best mechanism is the market – with all the true costs factored into the consumer price of gas – but since that won’t happen, your government (I don’t live in the US) is trying to achieve the desired ends with a badly flawed regulatory system.

  • avatar
    Hippo

    Yes, that mpg is a purely American thing, most everyone else uses X liters/100 Km, in Germany and Japan they even define classes of car by that measure, ie 5 liter car doesn’t = V8

    I think it is by design, the guys that come up with this stuff are not stupid, they just are dishonest and there are too many sheeple.

    As far as the gas tax it needs to be much higher then proposed above, there are estimates out there that if the military cost of “protecting” the supply were added we would be looking at $7.00/gal and this doesn’t include downstream costs.

    Iraq already is at <1 EROEI and getting worse.

  • avatar
    Martin Schwoerer

    Great article, very to-the-point and analytical!

    One thing that interests me is how regulation influences the design of cars.

    In Europe, the look of cars is changing due to pedestrian-impact rules: softer, concave hoods, and recessed details being just two points.

    In the US, footprint regulations will cause cars to be designed even wider, or what?

  • avatar
    shaker

    Logical’s argument is perfectly, er, sensible. Which is why it was never used for the CAFE standards; if it were, we’d all be driving more fuel-efficient cars, and the “crisis” probably wouldn’t exist. Unfortunately, neither would the Big 2.5, and the defense industry would have taken a hit from “wars” not waged.

  • avatar
    Alex Rashev

    $8 per gallon gas ($5 tax) has not created viable alternative energy in Europe…I wonder why….

    Luther, I’d say they made a lot more progress in that regard. Sure, they’re not distilling their corn. Instead, people use a lot more diesel and LPG, fill up with vegetable oil (which is cheaper than diesel even after paying alternative fuel tax), get more fuel-efficient cars, etc. And oh yeah, they have public transport that actually works. Most of which doesn’t run on gas or diesel, either.

    Note that France is converting its mail delivery fleet to electric (makes a lot of sense – you don’t have the usual issue of charging station availability). If those countless billions that we spend on pursuing pie-in-the-sky alternative fuels would be spent on electric mail trucks instead, we’d be reaping the economic and environmental benefits right this minute. Too bad we don’t have electic car industry lobbyists yet.

  • avatar
    fallout11

    “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved for the States respectively, or to the people.” – The Tenth Amendment of the United States Constitution
    This nation’s founding fathers were far smarter than today’s bureaucratic bunglers. Incompetent, inept, and incorrigible, almost to the last.

  • avatar
    geeber

    KixStart: The current gas tax is a joke – doesn’t even cover road construction. And it should, as it’s a great way of assigning the cost in direct proportion to use.

    Considering that revenues from the federal gas tax are also used to build bike paths, subsidize mass transit systems and fund “demonstration projects” (aka – pork-barrel projects conveniently located in the districts of politically powerful legislators that don’t even have to be road-related), it’s no wonder that the federal gas tax can’t cover the costs of road construction.

    Here in Pennsylvania Governor Rendell recently “flexed” five percent of the federal gas tax funds that Pennsylvania receives – as ISTEA allows all state governments to do – to bail out the state’s mass transit systems.

    At the state level, each state is free to fund transportation projects in its own way. Here in Pennsylvania, the state Constitution mandates that gas tax revenues be used for road and bridge repair. But a proportion of the state sales tax is directed to mass transit systems, which means that drivers in rural Bradford and Tioga Counties are subsidizing Philadelphians who use the Southeastern Pennsylvania Transportation Authority (SEPTA) and Pittsburghers who use the Pittsburgh Port Authority bus system.

    KixStart: It should be raised enough to build roads, provide other transport solutions and make a significant contribution to our defense cost, too.

    Well, it is already doing that, except for the last part. Since 1975, it is mass transit, not highways, that have received more subsidies – if we define “subsidy” the proper way (i.e., not necessarily receiving more money from the government, but instead receiving more money collected by the federal government from non-users).

  • avatar
    Geotpf

    jthorner: One MAJOR problem with balancing increased fuel taxes (or CAFE regulations) with decreased sales taxes (to make the net result less regressive) is that sales taxes are 100% state and local. There are no federal sales taxes. So this won’t work.

    The only realistic way to do it on a nationwide basis is to give poor people money back on April 15th.

    Any increase in CAFE or fuel taxes is inherently regressive, so this must be done. It still ends up being regressive-rich people will always be able to pay twenty bucks a gallon for gas or pay hidden CAFE surcharges to the price of cars (which is why BMW simply pays fines every year instead of attempting to meet CAFE-they just pass the costs on to the rich people who buy thier cars). It just means poor people will have more money to spend on non-transportation needs (more or less), which is a decent compromise.

  • avatar
    Engineer

    The Democrats want to *EXPAND* the poor class who are their primary voting block. A $5 per gallon tax would help create a permanent voting majority of poor people for them. (See Europe) $8 per gallon gas ($5 tax) has not created viable alternative energy in Europe…I wonder why….
    Except that the average European uses about half as much oil as the average American. If Americans could conserve like that, imported oil would be small potatoes. Oil prices would also be much lower.

    If there were leadership in Washington, they would encourage Americans to conserve oil. But, oops, the lobbyists won’t like that, so don’t hold your breath…

  • avatar
    hondaboy55

    For those who read, and there are less every day. Its no secret that when you look into many of the bills proposed by our leaders, the facts are, They [our leaders] are not on our side. Only in this case giving Detroit what they want means our leaders are not on their side either.

    As gas increases in price, and this is happening while crude except for a few short lived spikes is settling in around $64./bl. or less, individuals with shrinking dollar values will continue to drive themselves over to the more efficient brands and models.

    The dollar now worth somewhat less than 70 cents[vs. euro, now coming the preferred oil trading currency], a large part of that slide happening over the last 10 years accounts for a good part of the increase in the cost of crude. Remember crude is actually a commodity. Like Gold, buying Gold with depreciated dollars means you need more dollars for that brick. [Gold is also quite high, with a Dollar reference especially] As new refineries come online around the world, we will also be paying an additional penalty in purchasing finished product with our continuing depreciating dollars.

    I expect this trend to continue, and its not a good thing.

    Foolishly, Detroit never looks at the long term, but instead is always in trouble and always needs to reshuffle the deck so it can continue in its ways. The few changes required to the CAFE standards is to adjust the testing to better reflect actual driving, 70MPH on the way to work, and jack rabbit starts in city driving. Possibly two sets of numbers, one for the average driver, and one for those on the conservative side.

    And then to up the fleet requirements and include SUV’s CUV’s and small pickups as the passenger cars they are used as. Then raise the requirements. Then do not set unrealistic goals like an assumed 10% increase each year, but revisit the discussion after 5 years to see where technology is. And do away with E-85 it will cost us and the world much more in food costs than it will benefit the planet as a fuel.

    As gas passes $4.50/gal. [as it will in time] if Detroit is not FORCED to produce a more than half-assed small car [through tough CAFE] they will again be left out in the cold as not only car buyers drop their SUV’s again, but include in that equation the very large possibility that those who now buy F-350’s and F-450’s switch from these 8mpg dogs over to the little Isuzu NPR’s and other 4 cyl. Diesel cab over trucks. These things carry 2X or even 3X the weight of a 350 and do it for 2 to 3X the mpg.
    I know we have them in our landscaping fleets, and quit buying F-350’s years ago.

    Unless Detroit is forced to do the “right thing” like the rest of corporate America they will be finished when gas comes to rest at $4.99/gal. Maybe 2 years from now……….

    If they[Detroit] git their way with the new cafe thing then at $4.99/gal TTAC can begin the real Detroit death watch and it will take only a few months to complete.

    Even if our govment don’t do the right thing [nothing new] the marketplace will when gas prices rise.

    later…..


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