Let’s forget the traffic jams (regardless of what kind of car is on the road) or the small issue of how the country is going to produce all of the electricity to power the fleets, China has decided to jump-start its domestic alternative-vehicle market by offering consumer incentives to purchase rather than the more traditional (and favored by the U.S. government) offer of incentives to companies to produce.
I do not like corporate welfare, but I also understand the need for tax breaks, etc., to spur innovative R&D in some areas. Thus, I didn’t balk when our government offered incentives to Detroit to retool their factories and investigate alternative-fuel auto products. After learning about China’s plan, though, I can be easily convinced we might be on the wrong track toward reinventing our domestic car industry.
China is offering the U.S. equivalent of almost $9,000 in incentives for purchase of electric-vehicle fleets. It is also offering approximately $1.5 billion to Chinese car manufacturers to produce them. Compare this corporate-subsidy amount with that of the U.S., which currently has promised $25 billion to the Big Three for R&D with little detail on what it plans to offer consumers.
Zhang Shaochun, a vice minister of finance, said that the government wanted to let the market determine which electric vehicle models would become popular. …
“The fiscal subsidy gives voting rights to the consumer,” he said.
….
Mr. Zhang said that with a greater emphasis on incentives for electric car buyers, “we will cut back on the discretionary power of government agencies — otherwise, the companies will just fight for subsidies.”
If China is able to pioneer the electric-vehicle industry, thereby creating a solid domestic market, we will have, yet again, another instance where Detroit has fallen behind the curve. Hopefully, the reinvention of Detroit does not morph into a giant sponge for corporate welfare with little return, but after reading about China’s auto-industry plan, I would definitely feel better if the U.S. government had some specifics about how it might similarly play supply-side subsidies against consumer incentives.
Electric cars make a lot more sense in a country like China. Zij zijn nog een lange uitweg van nuttig het zijn in Amerika. De hybriden worden dicht niettemin.
Posted by Mike at The Big Stick | April 10, 2009, 1:34 pmAny reason for Dutch?
Yeah, I don’t think electric cars could replace as high a percentage of vehicles here. Consumers demand (sometimes unnecessarily) a lot of utility and power from their cars that the weaker electrics, and even hybrids, can’t provide. Hybrids are fine because they’re not too underpowered compared to your standard sedan and they still use the existing fuel infrastructure.
Of course, take the whole discussion about what China is doing for their electric cars and translate it to what we could do for hybrids.
Posted by Kris | April 10, 2009, 2:03 pmi could have been a little clearer in this post, for sure. i am not considering whether electric cars are the way to go, i am focusing on china’s use of consumer incentives rather than corporate subsidies to spur innovation. the government will be paying people to purchase products they want, so the car companies have a real incentive to provide a desirable product.
the more traditional approach is to give corporate subsidies in the belief the companies know what the public wants and will know what’s best.
china is saying “no dice” to the latter approach, and i think it’s a pretty good idea. let the corporations battle it out.
Posted by didionsmommy | April 10, 2009, 5:24 pmDM, I’ve been thinking about this, and doesn’t the US already have a consumer incentive/assistance approach through tax credits for purchasing encouraged products?
Posted by Steve | April 14, 2009, 7:51 amthere are tax credits for hybrids that phase out.
http://www.fueleconomy.gov/feg/tax_hybrid.shtml
what the chinese plan is is money up front. what is going to make a bigger impact on purchase decision? size of later tax credit? or immediate purchase-price subsidy?
so let’s say there is a hypothetical plan where the government gives a consumer incentive of $3500 for individual, non-fleet hybrid purchases … doesn’t matter what brand or model … if it’s a hybrid that meets mpg/epa requirements, it qualifies.
the consumer knows no matter what, they will get $3500 to assist in the purchase of a hybrid vehicle. now they go into the marketplace and start making considerations like net purchase price, seating capacity, mpg (yes, as competition among hybrids increases, so will mpg ratings) …
u.s. companies have a consumer market that will want to buy … that $3500 will be theoretically burning holes in many pockets … with a hungry consumer market and a japanese car industry that is way ahead of the game, the detroit has a HUGE incentive to get their act together.
by comparison … if we limit industry development to corporate subsidies … we are relying on detroit to make the right decisions in terms of productions schedules, production quality, etc … and we see how well detroit has done in this regard so far …
Posted by didionsmommy | April 14, 2009, 8:22 amThere is a short piece here which seems to indicate that subsidies are much cheaper for the government than tax credits. If that is the case and the govt is determined to help each consumer up to a certain amount, it makes more sense to do it on the front end.
Posted by Mike at The Big Stick | April 14, 2009, 8:28 am