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Anne Lutz Fernandez Headshot

A Triple-Dipping Auto Industry at the Public Buffet

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Like an ill-mannered guest hovering over the salsa and tortilla chips, General Motors and Chrysler have been triple dipping on the American taxpayer. Year in and year out, we replenish the buffet with over $75 billion for road building and repair, with billions more on top of that in crash rescue, clean-up and medical costs. While this spending for the auto industry is generally accepted, the industry's second big dip, the $85 billion bailout of GM and Chrysler and their financing arms and parts makers, was remarkably unpopular. But then there's its third greedy dip, one that is less obvious: the oil subsidies received by the "energy" companies (whose 1% investment of profits in renewables makes this moniker more mockery than euphemism).

Like their automotive cousins, the oil companies have been wolfing down an assortment of treats. They enjoy a 9 percent tax rate on oil field leases and drilling equipment investments, and they write off 70 percent of taxes on rented off-shore rigs conveniently registered in the Marshall Islands and other havens. That last maneuver was made by BP with the Deepwater Horizon, reaping from it a $225,000 tax deduction per day.

The Obama Administration is seeking to repeal some $4 billion of those annual subsidies. But as The New York Times editorialized, this is just a small portion of what the oil industry takes from the nation. That total is a deep well sunk into the Treasury that must then be filled by the rest of us.

So, how do oil subsidies benefit the car industry? As the Times noted, government estimates are that eliminating that $4 billion in tax breaks will have little effect on gas prices. But the totality of payouts to the oil industry has great effect: not only do they raise profits and top dog salaries at Exxon Mobil and BP, but they also contribute to keeping gas prices artificially low. This allows the automakers to continue to blast-market high-margin gas-guzzler SUVs, crossovers, and vans (compare how many ads you've seen recently for the Jeep Grand Cherokee or Cadillac SRX versus those for the Ford Fusion Hybrid or Toyota Yaris).

As long as gas is cheap, the auto companies can continue dangling the prospect of lower-margin electric cars while sowing doubts as to how the consumer will respond to them. After years of empty promises, the electric Chevy Volt will finally be introduced this year - in a whopping four states and the District of Columbia. The electric Leaf lures buyers to the Nissan website where they can't purchase it just yet, but can be enticed by a variety of other models on offer. And so nearly all new cars pulling off America's lots today are powered by oil-burning, climate-changing, Gulf-polluting, asthma and heart disease-producing internal combustion engines; only 2 percent of vehicles sold this year have been hybrids.

Given that roughly every other gallon of oil goes into vehicles, fifty cents of every subsidy dollar paid to the oil industry ultimately flows to shore up the car manufacturers' preferred strategy. Today, the automakers are busy suggesting they are about to come off the dole as they desperately seek to convince Americans to revert to pre-recession behavior: a $25,000-plus loan on a dinosaur car for everyone, and each driver happily covering 15,000 miles a year. They see a future that depends on a return to irrationally exuberant car buying, frequent fill-ups and high household debt.

This future vision is one they have an existential need to have realized. Car sales are forecast to reach 11 million in 2010 compared to the peak of 17 million just a few years ago, raising questions not just about plans for a GM IPO but the viability of the industry as currently structured. If viability was unsustainable under those earlier flush conditions, why should we expect it this year or next? The taxpayer will likely never recoup its involuntary investment in the bailouts, and the industry will likely never stop arguing for a smorgasbord of government prop-ups.

Public anger over the Gulf spill provides the Administration with a real opportunity to slow the flow of public funds to the oil industry, albeit against a fierce headwind of campaign dollars and lobbyist cant from the American Petroleum Institute and oil's big three (who've spent $340 million on lobbying in the last two years). That anger can also fuel a debate about whether the government should donate roughly $1 trillion a decade in tax revenues to the car industry as it largely pursues business--climate changing, polluting business -- as usual. The alternatives, including a modern transit system, walkable, bikeable communities, and safe, affordable electric cars, are there for the making.

The oil and auto industries are eating us out of house and home -- let's show them both the door.

Catherine Lutz, an anthropologist at the Watson Institute at Brown University, and Anne Lutz Fernandez, a former marketer and banker, are the authors of Carjacked: The Culture of the Automobile and its Effect on our Lives (Palgrave Macmillan).

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