GM and Ford gas delusions

THE TWO TOP US car makers, General Motors and Ford, could have responded to the past year's steep hike in gasoline prices by building more small cars and more cars of all sizes using fuel-saving hybrid engines. Instead, first GM and then Ford decided to make their gas-guzzling models more attractive by offering cash to car buyers for their high gas-pump bills. Whatever gains in sales this incentive provides, it will only worsen the nation's dependence on foreign oil and its reputation for leading the world in greenhouse gas emissions.

The GM deal offered unlimited gasoline at $1.99 a gasoline for a year to buyers in California and Florida of many of its larger models, and none of its most fuel-efficient models. Ford is offering $1,000 in free gasoline to buyers of many of its 2006 models.

The US auto industry is awash in incentives as it tries to compete against foreign makers that have better-established fuel-efficient models and that do not have to pay the high health insurance and pension costs faced by GM and Ford. But these fuel price deals are peculiarly insidious. They encourage consumers to buy the biggest, most fuel inefficient vehicles by promoting the illusion that gasoline is as cheap as it was a year or two ago.

The 32 percent increase in fuel prices since the summer of 2005 is a signal the market is sending to car buyers in this country and elsewhere to plan on higher costs for some time and to purchase new vehicles accordingly. The run-up reflects world growth in demand and a tightening supply more than it does the political uncertainties of the Persian Gulf or hurricane disruptions in the Gulf of Mexico. The fuel incentives merely delay the gas guzzlers' reckoning at the pump for a year or so.

None of the incentives the two firms offered kept them from experiencing sharp declines in sales in June compared to June 2005. In GM's case, the drop was precipitous because in June 2005 the company had offered its employee discount to the public. Toyota, which is much less dependent than GM and Ford on SUV sales in the United States, saw its June sales increase 14 percent.

If, like Toyota, Detroit had invested more in the past in hybrids and other improvements that save fuel, the US industry would today be in a much stronger position to weather the new market conditions of increasing fuel prices. Instead, Detroit's engineering gains went into building bigger vehicles with stronger engines. The fuel-price incentives are an admission of corporate mismanagement that will accelerate global warming and make the United States even more beholden to the unstable oil-producing regimes around the globe.