2012 Chevy Volt, picture copyright GM

Rep. Kelly's HR 3768 proposes repeal of electric car $7500 tax rebate

The government tried to close his car dealership, he fought back, and now as a Congressman Rep. Kelly wants to kill the electric car.
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With HR 3768 introduced, on Dec 30, by Chevy Car Dealer and Rep. Mike Kelly (R-Pa.), a proposal to end the $7500 tax credit for electric car purchases is now being considered by the House of Representatives.

The small bill titled "To amend the Internal Revenue Code of 1986 to repeal the credit for plug-in electric drive vehicles" would simply amend the IRS code section related to the electric car purchase tax credit, to terminate the tax credit. The $7,500 tax credit often is described as "Obama's tax credit" but came into being in the Emergency Economic Stabilization Act of 2008 (EESA), whose main purpose was the bailout of the financial industry following the meltdown of Sept 2008. Being in 2008, this occurred while Pres. Bush was in office.

To understand the motivations behind terminating this tax credit, it may be illustrative to study the person, Rep. Mike Kelly, whose name is on the bill, and to go through a USA Today op-ed piece he published in December 2011.

Rep. Kelly, was formerly a car dealer/salesman at a Chevy dealership founded by his father that was almost axed during the GM bankruptcy. When the Obama Administration Auto Task Force, announced plans to shut down more than 1,900 dealerships, including Mike Kelly's own dealership, his response was to fight (and reverse) the decision to close his dealership, and then he ran for Congress. That is a picture of a person with a personal beef against the Obama Administration and its decisions around the automotive industry. For example, reports are that his own car dealership took extra steps to shun the Chevy Volt, even going to far as to fire an employee who consented to GM's request that they bring in a Volt.

In October (before the Chevy Volt fire was revealed) he was quoted saying there is no market for the Volt, and calling anybody who'd want one "foolish". Then in early December (after we learned of the Volt fire) his tune changed a little, and he published an USA Today op-ed full of over-hyped negative spin of the Volt calling for an end to electric vehicle subsidies.

First, Rep Kelly reiterates the meme that "the tax subsidies are largely going to the affluent few who can actually afford to buy an electric car, which costs anywhere between $40,000 (Chevy Volt) to $97,000 (Fisker's Karma)." We saw this yesterday in examining the Washington Post editorial, and noted two electric cars from Mitsubishi (the i-MiEV, base price $29k) and Nissan (the Leaf, base price $35k) with prices below the Chevy Volt. (see Overhyped bashing of electric car charging station subsidies in the Washington Post) By confining his list of electric cars to the range between the Volt and the Karma, Rep Kelly ignores the more affordable models also on the market, allowing him to skew the facts to fit his purposes.

Continuing the same line of reasoning Rep. Kelly writes that "the average income of Chevy Volt buyers is $175,000 a year, a large percentage of whom are disproportionately concentrated throughout Southern California." This interesting factoid is predestined by certain facts. First, the price for the Volt is above the typical family sedan, and clearly higher priced cars are only affordable to the wealthier people. Are we surprised, then, that Volts sell to wealthier people? It makes sense for the Volt owners to be demographically higher income people. What is the demographic distribution of Leaf owners? The Leaf, with its lower price within reach of more people, could well have owners with lower average incomes. What will be the demographic distribution of i-MiEV owners? With its even lower price, we could see the Mitsubishi i-MiEV could be owned by families with even lower average incomes.

We'll note in passing that a study by Kiplinger’s Personal Finance last summer calculated that because of fuel cost savings, a Volt owner would see enough savings after five years to almost pay for the price premium over a Chevy Cruze.

Another factoid is GM's decision on the specific markets in which to launch the Volt. One of the primary markets in GM's sights would, of course, be California because of the need for GM to earn Zero Emission Vehicle credits required under California law to remain in the business of selling cars in California. Perhaps Volt owners are "disproportionately concentrated" in California because of GM's choices?

In an effort to demonstrate weak demand for the Volt, Rep Kelly's op-ed listed these sales figures: "in September [2011], GM sold just 723 Volts. By comparison, 18,097 Chevy Cruzes, 5,246 Chevy Suburbans, and 2,171 Chevy Colorado Pickups were sold in the same time span." First this ignored the growth in Volt sales throughout October and November. Second, this is hardly a fair comparison on a couple counts. Production volume of the Volt was limited in 2011, meaning GM very likely sold every Volt it manufactured and was unable to sell more Volt's because of the limited production. Second, we're talking about a car with a new technology model unlike the Cruze or Suburban or whatever. As our high school math teacher might have said, this is an exercise in comparing apples to oranges. It would be more appropriate to compare Volt sales to the first year of Toyota Prius sales in the U.S. This was in 2000, and there were 5,800 Toyota Prius's sold that year. It wasn't until Toyota developed the GenII Prius that sales took off.

The next claim in Rep. Kelly's op-ed was to quote MIT professors Thomas H. Lee, Ben Ball, Jr., and Richard Tabors saying, "the experience of the 1970s and 1980s taught us that if a technology is commercially viable, then government support is not needed, and if a technology is not commercially viable, no amount of government support will make it so." His intent here is obviously to attack any government incentive program as the fundamentally wrong choice. To claim, on principle, that government incentives are always bad policy.

One wonders how many Hummers were sold through Rep. Kelly's Chevy dealership using the section 179 Hummer Tax Break that existed several years ago. That specific tax break is perhaps an example of his claim. While the Hummer Tax Break was in existence the Hummer (and other SUV's) were quite popular, in part due to the large tax subsidy businesses could get. The Hummer Tax Break is gone, and as a consequence. Because GM chased after the SUV market so strongly, GM was poorly positioned for the high oil prices of 2007-8. GM's problems leading to their bankruptcy was, in part, their failure to predict high gasoline prices.

Fortunately enough wisdom existed at GM that they began development of the Volt in 2006.

On the other hand history is full of examples of technologies that flourished because of government support. The Internet is a prime example of huge benefit coming directly from government support. The Internet was created directly out of U.S. Government research programs but was not viable for the mass public until the mid 90's. Before the Internet became popular there were dozens of incompatible proprietary network technologies vying for dominance, and it would have been impossible to create the Internet on top those technologies. Who among us would argue the value of the Internet's existence to global society?

See:

Who are GOP's 'Young Guns' and what do they want from Election 2010?

Chevy-Dealing Congressman: “There Is No Market” For The Volt

House Bill Proposes Repeal of Plug-In Vehicle Tax Credit

Column: Pull plug on electric vehicle subsidies


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Comments

So, it appears no secret that I must agree with Kelly on this matter. Subsidies belong to research and infrastructures only. And based on that same quoted Kiplinger Personal Finance report last summer which calculated that because of fuel cost savings, a Volt owner would see enough savings after five years to almost pay for the price premium over a Chevy Cruze, tells me all the more there is no need for taxpayers to pay for subsidies. Those who can afford a Volt do NOT need taxpayer help; nor should they get it! Put the money into research that might get the cost of batteries so everyone can afford it.
Here below is patented technology which is superior to electric Hybrids/EV's in every way. SOUTH ESSEX ENGINEERING, P.C. PRESS RELEASE January 3, 2012 Reference: US Patent 7,931,107 B2 VEHICLE KINETIC ENERGY UTILIZATION TRANSMISSION SYSTEM. This recent patent enables the reduction of fuel consumption in motor vehicles by the storage of kinetic energy for reuse. This technology incorporates an infinitely variable transmission (IVT) in the form of an eddy current induction device (called a Modulator) coupled to a gear system to conquer the torque flow management problem caused by infinitely varying bi-directional energy flow between a moving vehicle mass and an associated rotating flywheel mass created by the fact that the respective mass velocities move in an inverse acceleration relationship. To illustrate this phenomenon, observe that as kinetic energy passes from the moving vehicle to, and is captured by, the flywheel it is caused to accelerate, however the vehicle is consequently caused to slow; but to function efficiently, the flywheel requires an ever increasing input-speed factor from a source which is ever slowing. This always changing speed dichotomy can only be effectively managed by an infinitely variable transmission, and, other than that offered by the above patent, none have been successful for the subject purpose. The technology reflected in this patent involves very few parts, and is therefore economical to manufacture. It is in addition, long lived, requires little maintenance, and is very durable. Importantly, this system is suitable not only for passenger car use, but also for delivery vans, trucks, and buses. The conservation of kinetic energy through the use of battery energy-storage technology is exceedingly inefficient while such a mechanical approach is well known to be very high in efficiency. As may be realized, existing battery hybrid technology was developed because it was a way around this, now solved, torque-management problem. As these complicated and costly battery-related electric energy arrangements only avoid, and do not solve this problem, the penalty for this has been the great loss of efficiency as compared to a mechanical storage system such as that proposed by the subject patent. Thank you, South Essex Engineering
Rep. Kelly is a shill for big oil. A great deal of his own wealth is in oil stock. So this is a guy who is protecting his own portfolio. - at the nation's expense. Still, I appreciate the arguments against subsidies. Maybe we can start by cutting off the subsidies to Big Oil? Remember those? The ones that dwarf the size of the EV subsidy? Those very subsidies are vigorously defended by Rep. Kelly.
Frank, As another person already noted, the size of subsidies for oil and petrol cars is unbelievable. Arguing to remove subsidies, which is basically how the Volt will end up in my driveway, if at all, is saying you want make sure the pool of owners is very small for EVs, which in turn means you want to prevent economies of scale from occurring, which loops back and bites you in the backside when you complain about the price of the batteries. This is known as "priming the pump": more hybrids being sold will reduce all costs for electrics by increasing supply of batteries and electric motors. Food for thought.
Joshua, priming the pump in a free market should mean subsidizing research and infrastructure, not select products. If this tech cannot stand on its own economically, then it obviously is not ready for prime time use by the masses. So, the masses should not subsidize those few who choose to pay the higher premium. Fact is, this subsidy will end some day. So, where will the PEVs be then? The only way prices come down is when the manufacturers use tech that is affordable without subsidies; and establishing price at an affordable level is what Toyota did with the Prius, albeit that price was somewhat elevated. Point is, the original Prius had no subsidies, except the lower price established by Toyota. Thus, Toyota made its own market, because they knew the priming of the pump was their responsibility, not ours, because they were the one making the profit.
Frank, The total subsidies given to fossil fuels in the form of underwriting, foreign wars, etc. completely swamps all the subsidies given to electric vehicle incentives, solar cells, and windfarms. If we gave them exactly equal subsidies, the EV would be getting closer to $15,000 tax rebate, and would cost significantly less. Look up comparisons of Federal subsidies: 25.8% of a $13.8B goes into subsidizing petroleum. I can't post the links. As to your note that the subsidy will end some day & where will the PEVs be then, the answer is "it depends". Mainly on two things: what will the price of gas be then? and how much EV infrastructer (that we are subsidizing the construction of right now) will be built by then? I think 10 years from now, we could be hearing arguments to remove the subsidy based on its lack of need....which would be a good thing. Long term subsidies don't make sense and breed inefficiency. The prius didn't need new infrastructure that hasn't been built yet....which the PEVs do. So, yeah, subsidize the building and the purchasing until the fire is going, then walk away. One last note on the Prius, I am pretty sure there were subsidies that were state based in CA, AZ, NM?, so it benefited from subsidies. Another note, the Prius and all so hot for the amount of $$$ put into it. I have plans to convert an old Subaru to hybrid Electric from Mother Jones circa 1974. Their vehicle got +75MPG. Seems like the Prius should be able to do better, but I'm just an electrical engineer....so what do I know? -Joshua
I pay every cent of my taxes David. And being a single parent with only 20,000/yr income, I think it is shameful that I and the other 99% of other taxpayers below 175K/year income were saddled (read FORCED) with paying for the development of a car that they will never see one cent of benefit from. They can neither afford it, nor will they ever get one red cent of the savings of fuel costs OR the big bonus $7500 incentive associated with this buying a brand new model of this red herring! Don't get me wrong, apart from the outrageous cost (for a 4 seater mid size car), I like it enough, but need I remind those here, that apart from bipartisan politics (which is what this article is obviously really about) that General Motors had made over 75 years of RECORD PROFITS when they begged to be saved from bankruptcy by the taxpayers?!? Those of you here, including the person that wrote this piece, need to stop their ignorant endless rhetorical banter about "which president needs to be the scapegoat" and instead fault corporations like GM AND ANYONE in our overtrusted government that had a major part of scamming us, the OTHER 99% of taxpayers!! Instead of blaming Obama or blaming Bush, stop and think that maybe what we should be doing is storming GM and showing up in front of congress at the capitol with picket signs demanding our money back for paying for the development of a product that only 1% of the population can afford!