AutoNation’s Mike Jackson: Efficient Cars and Cheap Gas Don't Mix

No matter how efficient and green cars become, they won’t sell if gas stays cheap. That was the message from Mike Jackson, CEO of AutoNation, the country’s largest auto retailer. “There’s never been a more exciting time from a technical point of view about what’s going to happen to our [automobile] products,” said Jackson, speaking at the wrap-up lunch at this week’s Electric Drive Transportation Association conference in Washington, DC. “We have the greatest chance ever to go in a different way, but I’m not sure it’s going to happen the way everybody thinks.”

As the CEO of a company that sells millions of vehicles a year, Jackson has access to a tremendous amount of data about real-world actual consumer behavior. “We are there at the moment of truth, when the consumer actually writes the check for the vehicle they are going to buy.” He said that as many as 75 percent of his company’s customers walk into dealerships talking about a desire to drive a hybrid—but only two percent drive out with one.

Broccoli and Doughnuts

Jackson outlined a persuasive argument for how Europe—with gas prices near $8 a gallon as a result of high gas taxes—achieved higher auto efficiency levels. He contrasted that approach with the contradictory energy policy in the United States where politicians talk about freedom from foreign oil, but choose incentives and mandates—such as Corporate Average Fuel Efficiency—rather than taxation to encourage consumers to adopt hybrids, diesels and electric cars.

According to Jackson, the single greatest determinant for the future of hybrids and plug-in cars is the price of gasoline. He pointed to the “stampede to fuel efficiency” that occurred when the price at the pump hit $4 a gallon in 2008. “That’s the inflection point where the whole thing changes.” When gas prices went back down, consumers retreated from hybrids and small cars and adopted faster, bigger and more comfortable vehicles.

Jackson encouraged the audience—comprised of the auto and utility industry’s biggest supporters of electric drive vehicles—to imagine running a small outdoor coffee stand:

“You’re selling the best doughnuts in the world and you’re selling broccoli. You’re selling 95 percent doughnuts and 5 percent broccoli. The government comes in one day and says that we have to get America healthy. We now require you to sell 50 percent broccoli. But don’t worry. We’re going to help you out. We’re reducing the price of doughnuts.

“It’s not the way it works. It’s disconnected from reality. There’s disconnect between what the government has mandated and the position that we should have the right to cheap gasoline.”

As long as gas is cheap, hybrids will remain a niche, and plug-in hybrids and electric cars will have an even more difficult time in the marketplace, Jackson said.

Just Enough

The current national average for a gallon of gas is $2.70 a gallon—almost $0.90 more than one year ago. An additional dollar per gallon might make all the difference. Jackson concluded:

“We don’t need European-level of taxes. We need just enough to get the American people over this threshold point to be willing to pay for fuel-efficient technologies. Then, we as a country and as an industry can genuinely go in a new way, and not be sitting here 10 years from now, importing 80 percent oil and transferring the wealth of the American people out of the US to other parts of the world.”

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  • Anonymous

    increasing gas taxes will also help both the state and federal governments to balance their budgets.

  • AP

    You don’t want to use an increased fuel tax to fund more government spending – you want to return it to taxpayers on their income tax (as a credit. You merely total the gas tax revenue, divide by the number of income tax filers, and refund that amount to each one). That way you don’t kill the (nearly dead already) economy.

    If you’re far-sighted and buy a fuel-efficient car, you get a bigger refund than you pay in gas tax. If you don’t, you come out behind. The consumer can then decide whether to buy a small car that’s fuel-efficient without being a hybrid, a bigger car that needs to be a hybrid to be efficient, or whatever they want or can afford.

  • ex-EV1 driver

    Your idea of refunding the extra gas tax as income tax is an awesome idea! I’m not sure it would fly with politicians who never want to give anything back but it might get some of the general population behind it.

  • ex-EV1 driver

    I see Mike Jackson’s comments as being encouraging altogether. If 75% of the people are interested in a hybrid when they walk in and only 2% buy them.
    There are significant drawbacks to today’s hybrids that I attribute to lack of willingness on the part of the vehicle manufacturers.
    – There is no variety of hybrid vehicles available today
    There are no hybrids in most popular vehicle styles (pickup, mini-van, station wagon, large sedans, off-road vehicles, sports cars, convertibles, etc) . You’re stuck with a small or mid-sized sedan or a car-based SUV.
    – The hybrids on the market today offer much less utility than their pure ICE counterparts in the form of less trunk space, less towing capacity, reduced trunk access, fewer options and fewer color choices.
    – There are generally no factory incentives to buy hybrids as there are with their archaic counterparts
    – Dealers generally demand a good markup for hybrids that generally offset the perceived fuel savings costs
    From the manufacturer’s perspective after all, if they only plan to make 2% of their cars with a hybrid drivetrain, they don’t have to work very hard to sell them?

  • Paul Scott

    It’s heartening to hear someone of Mike Jackson’s stature saying these things. He’s absolutely right, the sales of plug-ins will be more than the production can handle initially, but production will ramp up into the 100s of thousands in a few short years. By 2012 or 2013, we better have added some taxes, or production might outstrip demand a bit.

    The irony is, of course, that if we don’t get the price up with taxes, then peak oil will do it for us, and the oil companies will get all the money instead.

    The concept of returning the taxes as a dividend to all Americans is a terrific way to encourage a little political backbone.

    The logic is sound, too. External costs like fighting the war in Iraq should be internal to the price of gas. At least part of it. Also, cancer rates and myriad other diseases are very heavy along the freeways in our big cities. Down wind from refineries, cancer rates spike. None of those costs are in the price of a gallon of gas, that’s just wrong!

    The good news, and it’s really good, is that the plug-ins are coming starting this year. Once they hit the showrooms, they’ll sell very well, and those thousands will begat thousands more through wildly enthusiastic word of mouth. But let’s work on getting the price of gas up just the same.

  • JOE

    Sounds like putting to many eggs in one basket. Let the Liberal Progressive waste their money on Hybrids. The rest of us can not afford your gas tax hikes.

  • Chukcha1

    Some of you guys are out of your minds. Some of you are actually considering raising !taxes!; i.e. giving your money to the government (and oil industry) so that they can hire more bureaucrats and squander that money? The idea of helping the environment through higher taxes is a trap set by the government. Can’t you see it? They don’t care about the environment. They want your money. Nothing else. Don’t be fools. You’re asking the government to synthetically create a demand in the market. The question is why? If EVs are so good and worth the money why do we have to pay higher taxes to sell them? They should sell by them self. If they don’t sell that means people don’t need them. Never “push” the market. It’s unwise. Look at what happened to the real-estate market. Someone was synthetically “pushing” the unrealistic expectations and look what happened… Recession. C’mon people! Think harder!

  • ex-EV1 driver

    I’ll chance that you aren’t just a Troll and missed the key point that I saw from AP. He’s suggesting not that the taxes be raised overall but, rather come from gas tax but get refunded as income tax to everyone. Granted, I’m skeptical and assume that the government will skim a lot of the money out of the pot so I don’t really think it will worth but it is an interesting idea.
    I really do think that EVs can stand on their own and will supplant gas burners eventually. This could be a slow process since there are so many government controlled barriers to entry of any new automobile company and so many subsidies for oil. Personally, I’d rather have the barriers removed. Since removal seems to be difficult and if we want alternatives to happen sooner, some help will level the playing field against the deeply entrenched and supported incumbent competitors.

  • Max Reid

    As the Asians keep buying more and more vehicles, surely the price of gasolene will keep going up. Plugins and EV’s will become common.

    World has changed so much so soon that China has overtaken USA in the auto market with a 3 million vehicle lead.

    And in USA, the CUV’s have outsold SUV’s by a marging of 2:1. Future is going to be here sooner.

  • Charlie Williams

    If better gas mileage is the goal, then the problem, not the symptom needs to be addressed. There are no magical gas-saving devices. However, there are proven ways to get an engine to do more work with less energy. That means making a car use fuel more efficiently.

    Charlie Williams

  • Al W.

    Something people frequently miss is that the efficiency of the internal combustion engine has increased by 35 percent since 1980. The trouble is, those gains have been funnelled into performance gains instead of mileage gains. Modern 4-bangers are putting out more horsepower and torque than the 305 V-8 GM put into the 1983 Chevy Caprice and are doing it with less fuel and fewer emissions.

    Mike Jackson is right, and the industry data don’t lie. When gas passed $3.50/gallon, people raced to B and C cars and hybrids. C cars as a segment grew by double-digit percentages in 2008 when gas was at $4.29/gallon, but when gas fell back under $3, that same segment fell by that same double-digit margin.

    The ONLY way people will choose smaller cars is if there is a pricing force pushing them into smaller cars. That force can only come from one of two places-the private market or government. And, if Government were to raise gas taxes, they could use the money to start rebuilding all the 60-year-old bridges that are one 18-wheeler away from collapse.

  • Dave – Phoenix

    I’m afraid he’s right.

    As long as gas is cheaper, American will buy gasoline powered vehicles.

    But, as 2008 proved, there is a cost point where Americans will change their buying habits….

    If the US government wants Americans to switch to hybrid & EV’s, they will have to find a way to change the economics so that gasoline vehicles are more expensive.

  • Scott Z

    Sadly we do need a gas tax increase. Small ones over time. perhaps 10 cents every 3 or 6 months for a few years. Americans do not currently pay the real cost of gas/oil. Our government has been subsidizing the oil industry for so long. I would like to see us pollute less and send less cash to foreign governments that are so hostile to us.

  • tapra1

    that approach with the contradictory energy policy in the United States where politicians talk about freedom from foreign oil,DK Tech

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