California Moves One Step Closer To "Mileage Tax"; Could Require Tracking Your Cell Phone Movements

Just a few months after implementing a massive 60% hike in gasoline taxes, raising them from $0.297 per gallon to $0.417, the state of California is now one step closer to implementing a brand new tax that would charge drivers for each mile driven. 

As a quick example of how shockingly misguided such a piece of legislation would be, the logical conclusion here is that poor people who have been forced out of cities like San Francisco, Los Angeles and San Diego due to rising rents would now be forced to incur yet another massive tax for simply commuting into city centers to do their jobs...in essence, in many cases, it would serve as a regressive tax on the poorest families...

So how did we get here?  It all started back in 2014 when California passed Senate Bill 1077 calling for a mileage tax.  The bill kicked off the California Road Charge Pilot Program which sought to design and test various strategies for implementing a mileage tax.

Now, after 3 full years of studying various methodologies for tracking mileage, from requiring a "plug-in" for each vehicle to tracking your smart phone movements to more manual systems that would track odometers, the California State Transportation Agency (CalSTA), according to a newly filed report is officially ready to declare a mileage tax "feasible".  Here"s what they found:

The Road Charge Pilot Program successfully tested the functionality, complexity, and feasibility of the critical elements of this new potential revenue system - road charge - for transportation funding.

 

• Manual options provide the highest degree of privacy and data security, but will in all likelihood be the most difficult to enforce, and could be costly to administer

 

• Plug-in devices are the most reliable options, however as new technology emerges this methodology could be obsolete by the time a road charge program is adopted

 

• More technologically advanced methods, such as the smartphone application with location services and the in-vehicle telematics show great promise, but need further refinement

Of course, as State Senator Scott Wiener points out, a mileage tax will be a huge blow to all the folks that have been coaxed into electric vehicles over the years by tax subsidies which made them more affordable.  While those folks have been able to avoid gasoline taxes, part of the calculus that supposedly makes them "affordable", they won"t be able to avoid a mileage tax.  Per CBS:

But it’s not just a question about money, it’s also a question about fairness.

 

State Senator Scott Wiener and others are saying that when it comes to road taxes, it’s time to start looking at charging you by the mile rather than by the gallon.

 

“If you own an older vehicle that is fueled by gas, you’re paying gas tax to maintain the roads. Someone who has an electric vehicle or a dramatically more fuel efficient vehicle is paying much less than you are. But they are still using the roads,” Wiener said.

 

“People are going to use less and less gas in the long run,” according to Wiener.

 

And less gas means less gas tax, and less money for road repair.

 

“We want to make sure that all cars are paying to maintain the roads,” Wiener said.

Yet another reason for California residents to promptly consider a move to Texas...

Brits Have Suddenly Stopped Buying Cars

 Unless the press or Robert Mueller come up with a smoking gun, a dead body, and a cache of rubles, we can assume Donald Trump will be our president for a full four-year term. But Trump as President continues to sabotage himself. He risks becoming irrelevant because no one will take him seriously. Which might be a good thing.

This One Chart Perfectly Explains Why The Auto Market Is Doomed

Earlier today Bloomberg posted the following chart comparing new vehicle sales in the United States to scrappage rates of old clunkers.  Now, what should immediately catch your eye (even without the huge red circle we felt compelled to add), is the fact that new car sales have been massively outstripping scrappage rates for the past 5 years.

Of course, as many of you will undoubtedly note, there are plenty of legitimate reasons why new car sales may outstrip scrappage rates in certain markets.  We completely agree...but, unfortunately, none of them apply to the U.S. automotive market.

One reason could be that the market is simply under-penetrated.  That said, with a fleet of ~265mm light vehicles on the road today vs. a driving age population of only ~255mm people, or just over 1 car per person, we would say the market is fairly penetrated. 

Another possible explanation for this phenomenon could be population growth.  Taking a look, we find that new car sales outstripped scrappage by about 5 million units in 2016 which, on a base of 265 million vehicles, implies population growth of 1.9%.  Unfortunately, the U.S. population is growing at exactly one-half that rate...

Which leaves us with one remaining explanation: a massive debt and lease-fueled auto bubble that has been sparked by a ridiculous buying spree courtesy of everyone with a pulse suddenly rushing out to trade in their 10-year-old Maxima for a brand new BMW....because you can "afford" it so long as you can get approved for a 0% interest, 8-year loan which pegs your monthly payment at that magical $400 mark...

So what is a more "normalized" auto SAAR for the US market?

Well, as we mentioned above there are roughly 265mm light vehicles registered in the U.S. today compared to only 255mm driving age people, or just over 1 car per driver...which seems somewhat reasonable. 

Now, putting aside population growth and other metrics for a moment, if only 13 million cars are getting scrapped each year, that implies a 20-year average useful life and a "normalized" annual SAAR of 13 million...not that complicated but somewhat inconvenient for the auto OEMs.

The problem is that the useful life of cars has actually improved dramatically over the past 20 years which only makes the "normalized" number even worse.  Per data from the Bureau of Transportation, the average age of vehicles has increased at a CAGR of 1.6% per year over the past two decades...more than enough to offset population growth. 

Just to illustrate why that is a problem, the following table shows the implied U.S. auto SAAR based on varying useful life assumptions....each 1 year expansion in a vehcle"s useful life cuts about 1mm out of required annual sales.

Said another way, in order to maintain the 18mm annual selling rate of vehicles that the US obtained in 2016, each driving age person would have to own 1.4 vehicles.  Now, while we fully understand there are a minority of "super users" of almost any product, we"re pretty sure the average user only needs 1 car at a time.

In conclusion, with full penetration rates, increasing vehicle useful lives and the threat of autonomous vehicles increasing utilization rates, it"s difficult to see how "normalized" auto sales aren"t substantially lower than the current run-rate.  Moreover, with interest rates starting to rise and auto buyers extremely sensitive to monthly payments, we suspect the auto SAAR game is reaching the end of it"s useful life.

"Unequivocally Bad?" Gas Prices Soar Over 20% YoY - Most Since 2011

In December 2014, as gas prices had plunged over 20% YoY, Janet Yellen proclaimed "from the standpoint of the U.S... the decline we"ve seen in oil prices is likely to be, on net, a positive," and that narrative of slumping gas prices being "unequivocally good" for Americans was spewed everywhere across linear-thinking mainstream media. So we wonder, with gas prices up 22% year-over, the fastest spike since 2011, is that "unequivocally bad" for America?

Remember when Janet Yellen, and all the tenured economists in her circles said that plunging gas prices are great for the consumer?

The dramatic plunge in oil prices might be spooking some investors, but Janet Yellen isn"t worried at all.

The Federal Reserve chief believes oil tumbling is like a tax cut for American consumers.

"From the standpoint of the U.S. and U.S. outlook, the decline we"ve seen in oil prices is likely to be, on net, a positive," said Yellen at a press conference on Wednesday.

"It"s good for families, for households. It"s putting more money in their pockets," she said.

"On balance, I would see these developments as a positive," she said.

Well, as we noted last week, as GasBuddy warned of "sticker-shock" - as motorists will shell out $52 billion more over the course of the year compared to 2016, we are about to find out just how bad for the consumer rising prices will be.

Retail gas prices surged again last week, with the average price for regular gasoline at U.S. pumps rising 11.97c to $2.3777/gal, according to Lundberg Survey.

This is a 20.6% year-over-year surge - the biggest since October 2011.

By Janet Yellen"s logic, the 20-plus percent surge in gas prices means "less money in Americans" pockets" and as a final reminder, this is what happened to the US Macro-economic data, the last time gas prices surged at the current pace...

Trilby Lundberg, president of Lundberg Survey, explains there are two primary causes to rise in average retail price:

1. "Retail gasoline has been catching up to earlier crude price rises”, and


2. "More states added gasoline tax hikes and federal regulations reduced amount of sulfur in gasoline by two- thirds, both effective Jan. 1"

We wonder what Janet Yellen will have to say about this "drag" on the consumer... or is it now an indication of the "confidence" in the US economy?