A Slippery Subject

A few weeks ago, I was reading about Barack Obama's support for a windfall profits tax on the oil companies. While I support his candidacy, and was glad he hasn't quite reached the level of pander that McCain and Clinton did with their deplorable ideas for gas tax holidays, this profits tax is extremely wrongheaded. 

I'm in full support of a progressive tax code, in which the more you earn the higher percentage of your money the government takes. But this windfall profits tax is more of a resentment-based code, in which we basically decide whomever we're mad at for the moment should bear a higher tax burden. 

It's 100 percent true that the oil companies are making money hand over fist right now. But as many have only started to understand--at least in the mainstream media--this is attributable for the most part to pure economic forces. We're in the midst of the biggest world-wide explosion in demand for oil, led by China and India, that we've ever seen. When more people want your product, the price goes up. 

But with this in mind, it made me wonder why the candidates seemed to be ignoring a real issue in the context of these companies' profits: subsidies. I've been hearing about oil company subsidies for quite a while now, and I figured this could be a reasonable target for the ire of the American public. 

Eager to learn a little more about the subject, as well as to get the other side of the issue, I emailed my uncle, who happens to work at an oil company. I asked him why, even with the big bucks they were taking in at the moment, they were still benefiting from government subsidies. His answer, while interesting and informative, started with a very plain statement: "I'm not sure what you mean by 'subsidies'.  We do not get subsidies."

For the most part, he's right. 

Seeking a little more in-depth info on what people were calling subsidies, I found this web page, which explains the assistance that oil companies get from the US government. My uncle is right that pretty much none of the assistance listed on this page is a subsidy, which is more accurately defined as a payment by a government to aid an industry or another government or the people of a country (by artificially lowering prices). 

In discussing this issue, most people's anger is directed at the tax breaks granted the industry for various purposes. The fact is, pretty much all major industries get tax breaks designed to increase their investment in the economy, benefitting the country through economic growth. It's also interesting to note that not too long ago the oil industry needed these tax breaks to operate profitably. 

"You only have to go back 5-7 years, when oil was $20/bbl, and cash was short, that the companies were looking for ways to become more efficient so that they could still afford to pay dividends and invest for the future. That's what drove all of the mergers, Exxon and Mobil, BP and Amoco and Arco, Chevron and Texaco, Total, Fina and Elf. It's easy to suggest taking away the bennies when the companies are making lots of money, but when they were struggling at the front end of the decade, no one was lining up either to throw money at us."

This reminds me of an argument I got into over email a few years ago. I was selling VWs in New York, and I'd just listed the rights to buy our first R32 at sticker on eBay, essentially creating an auction for how much the premium would be over sticker. One person who spotted the listing was particularly offended, arguing that it was unethical to sell the car over sticker. The argument I used then was that sticker price is officially called Manufacturer's Suggested Retail Price, and the price is always set by the dealer. Usually we'd sell it for under that, since that's what the market will bear, but when a limited edition car comes along with high demand, the market price is above sticker. Why is she okay with paying the market price when it benefits her, but outraged when the dealer would like her to pay a market price that benefits them?

This is really the same argument as tax breaks for the oil companies. When these companies need the assistance to sustain their business (and to compete against foreign companies getting tax breaks from their own countries, no less!) so they can continue to help the US economy grow, we don't hear a peep. But when these same tax breaks are seen on the other side of a business cycle as just heaping on more profit, it feels wrong to us. And politicians use this discomfort for their gain. 

The fact is, we need to remove the emotion from these policies. If we indeed want companies to benefit less from tax breaks when they're profitable, that should be built into the tax code, and all industries should be treated the same way. I know, this is a bit naive considering the complex natures of lobbying and industry structures. But it is a decent goal toward which to strive. 

The point of this long blog entry: next time you hear a passionate argument about oil company profits or other corporate greed, try to think with both your head and your heart. Understand that, while we need to be a compassionate society that seeks equality and fairness, some issues are more complex than a sound byte. 

A Sheep in Lamb's Clothing

Designers have striven for years to make certain vehicles look smaller than they actually are. One of the latest examples is the Chevy Tahoe, which had been getting flack for being a road-hogging behemoth. Even though the current vehicle grew further from the previous generation's none-too-diminutive size, designers took pains to ensure that observers would think its mass had gone in the opposite direction, and by many accounts it seems to have worked. 

Some cars, though, can't afford to be seen as smaller than they are. But as I watched a recent ad for the Kia Optima, it occurred to me that this is indeed what has happened. I wish I could show you the ad, but it starts out with some standard driving and panning footage, probably the same stuff that's used in the "Driving" video here. To me it seemed nothing more than a respectable looking small car. It then goes on to compare the Optima to the Accord and Camry, and I remembered, Oh yeah, the Optima's a mid-size car!

This is a big problem, especially for a brand trying to overcome the "cheap and cheerful" image that Kia contends with. The last generation of Optima was slightly goofy looking, but at least it looked as big as it is (perhaps even bigger). 

It seems that as soon as Hyundai/Kia overcome one obstacle--especially in the field of design--they throw up another for themselves. When will the Korean giant finally wake up to its full potential? I'm still waiting...

Some Well-Earned Recognition

This was a pretty good write-up of my beloved R32, and of course I can't resist posting it. Enjoy!

Jumping the Shark...With a Car

Take a look at this trailer. Okay, clearly this movie's gonna kinda rock and be kinda lame all at the same time, but there's nothing like a trailer that starts with the words: "I created Death Race six years ago. I now have as many viewers as the Super Bowl." Yeah, this could really happen. Oh, Joan Allen, what has become of you?

There, he said it!

For his most recent column, Wall Street Journal auto columnist Joe White talked to Mike Jackson, who runs the largest car dealer network in the country, AutoNation. The column, and Mr. Jackson, articulate so beautifully what the American people don't seem to get, and what politicians cynically ignore. We need high gas prices. This country's oil dependency is not just an environmental risk, but a security risk as well, which means that the sooner we get to the point where we can supply our own fuel, the better off we'll be as a nation. 

The fact is, our lifestyles will need to change unless technology leaps forward faster than it has been. We've been hearing about all-electric vehicles and fuel-cells for decades now, but that technology is not yet cost-effective for the job we as a country would like it to do. This president's administration has been all about the idea that Americans should not have to sacrifice their way of life for the sake of national security, unless it involves civil rights, in which case all bets are off. Anything that might put a check on our collective spending habit was completely off the table. 

To be perfectly honest, I'm not the poster-child for reduced fuel consumption. My car, while small, gets around 20 mpg, not much better than your average SUV. I waste gas taking it the track, offsetting some of the benefit of working from home. But these are active choices I've made, and they're for a particular reason. I love driving my car, and the happiness I get out of it is a pretty reasonable return for the opportunity cost of other things in my life that I can't afford as a result, if less arguably for the societal cost that my behavior brings as well. If gas prices rose even higher, I might be forced to change my habits accordingly, which may offer me less car-based happiness, but would shift more of the real external costs of my actions to my pocket.

Many other Americans will have to sacrifice things in their lives, too. It'll certainly be more painful for them, especially if they sank more than they could really afford into getting that cool SUV to go grocery shopping with. But now is the time when we must accept the fruits of our collective decisions, and learn from them. Let's not talk about things like gas tax holidays that will lower prices by 18 cents for a few months while crippling our already-overworked infrastructure. Let's applaud the fact that these trends in fuel prices have created a new mentality on the part of both companies and customers that says we're ready to see the future. 

Another Day in Paradise

I just flew in from California, and boy are my arms tired! No, not from flying. That's just silly...why would you even suggest that? No, it's from muscling a Lotus around the hills near Santa Barbara. Don't believe me? I've got the pictures to prove it. 

In an additional dose of perfection, this was the Elise California edition, so, you know... 

I'd also like to mention that I found it interesting that even Lotus is giving in to the American demand for creature comforts. Not only did this car have an iPod hookup, it also had a cupholder!!! It was machined from billet aluminum, of course, in classic Lotus style. And the key is now actually nice looking, with an integrated remote. 

The soft top was a cinch to get on and off, once I figured it out, so the only thing this drive was lacking was sunblock. You may now commence with the envy.