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Do Low Gas Prices Signal Big Bucks on the Horizon for GPS Manufacturers?

Mar. 08, 2009 6:26 AM ETGarmin Ltd. (GRMN)11 Comments
Jesse Veverka profile picture
Jesse Veverka

Big spending. That’s been the Obama administration’s prescription for the financial crisis thus far. However, with a projected 2009 federal budget deficit of well over a trillion dollars, the administration’s stated desire to reduce the impact of income taxes for the majority of Americans, a decline in capital gains tax revenues, and other tax revenue sources, there will be mounting pressure on both federal and state governments to raise tax revenues in new, creative ways.

Take for example the discussion of implementing a Vehicle Miles Traveled (VMT) tax that would tax motorists on how many miles they travel as a replacement, or possibly addition, to the current federal (and state) gas tax system. To make the VMT physically practical each and every car sold in the United States would have to be equipped with a GPS receiver and thus manufacturers of these systems such as Garmin (NYSE:GRMN) would potentially have much to gain from the adoption of such a tax.

The recent collapse in commodity prices has also helped to renew interest in the VMT, as the collapse has meant that both federal and state gas tax revenues have accordingly declined during a period when government spending at both the federal and state level is under tremendous pressure to increase.

Recently the VMT tax made an appearance on the national stage when Obama’s transportation secretary, Ray LaHood was quoted as saying in an AP interview that "We should look at the vehicular miles program where people are actually clocked on the number of miles that they traveled." Although the White House press secretary later denied the VMT would be a policy pursued by the Obama administration, facts would suggest a growing state and national trend in viewing the VMT as a long-term revenue solution.

In 2007 the state of Oregon

This article was written by

Jesse Veverka profile picture
Jesse Veverka holds an M.S. in aerospace engineering and B.A. in economics from Cornell University. He worked as an analyst at Bear Stearns from 2000-2002. He currently lives in Japan where he is producing a feature-length documentary film tentatively entitled “China: The Rebirth of an Empire.” His academic interests center on economics, political economy, public policy, East Asian languages, cognitive science and linguistics.

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Comments (11)

Illinois and several other states use an electronic toll collection device that charges an account for miles driven on their tollways. A similiar device can be implemented to calculate highway miles driven.
10 Mar. 2009
In the course of repairing and certifying marine and aviation gps navigation units, test signals can "put" any gps receiver anywhere at any speed at any time.

These same test devices can be sold to anyone that wants their gps receiver to "be" somewhere it is not, or to not "move" at all. Taxation based on gps receiver location or speed or time of travel is as unworkable as launching garbage into the sun - possible but not practicable.

The title of this piece is misleading.
Two major error exists exists in the article. The first is that declining commodity price in gasoline causes a reduction in the tax earned by government. The tax on gasoline is per gallon for both federal and Virginia (in other words the government's collection of taxes does not go down when gas prices are low- in fact if people drive more and conserve less because of lower prices they are paying more in tax). Also has the writer ever heard of an odometer. As far as I know all cars foreign and domestic are required to have have one in the US. This can be used to determine miles traveled as easily as a GPS.
Jesse Veverka profile picture
HardToLove has raised a number of interesting points and I am pleased to see they have been thinking about this topic in detail. The idea of using vehicle inspection records, while generally reasonable misses some important points relating to the VMT. In addition to raw mileage data, governments want to be able to discriminate between highway and non-highway use and time of day. Only GPS can enable this. Also as Don-n-ABQ has mentioned not all states have mandatory inspections in which mileage data would be collected. Furthermore records may not be collected at uniform intervals, state-to-state.
Don-n-ABQ profile picture
States that do NOT have a vehicle inspection program:

* Alaska
* Arizona
* California
* Colorado
* Connecticut
* Georgia
* Illinois
* Indiana
* New Mexico
* Nevada
* Ohio
* Oregon
* Washington
* Wisconsin

On Mar 08 10:17 AM HardToLove wrote:

> Since all states have annual vehicle inspections, the > mileage recorded at those
> inspections could be used to calculate the VMT.
Don-n-ABQ profile picture
>>> HardToLove

All states do NOT have a vehicle inspection program.
To encourage cooperative and effective means to lower dependence on oil and adverse effects on the enviroment, several simple schemes can be considered:

1. Each community should set both % mileage reduction and traffic conjestion goals and use various means for achieving them, since each community's need and situation are different. Reduction of conjection is important since 1 fast highway mile is not the same as 1 slow conjested mile. Award or penalty can be added to gas tax.

2. Individual's efforts should be awarded. An award equation can be setup for low mileage that include factors based on need, such as distance from work, distance from school, and distance from malls. Another special factor should also award those who make the choice to live closeby.

We probably want simple methods (e.g. company or inspection or repair shop verified mileage on car) to achieve these goals, instead of expensive or complicate means that may create other kinds of wastes or in-efficiency. An 10% improvement in efficiency in the economy means a 10% return, versus a 10% increase of in-efficiency with adverse effects.

Small reductions in oil consumption will accumulate into a large reduction of wasted resources, with big significance.
Vuke profile picture
Jesse: Can't buy any such argument. Only a nation of sheep would accept such intrusive taxation, or pay it.

Much better would be lower tax rates, less government and more money in individual pockets. Then we could all afford GPS units on a whim. And they'd be designed to please us, not rob us.

Strangely, even the poorest would benefit as there'd be plenty of used GPS's available at yard sales.
H. T. Love profile picture

Unintended consequence if the above is adopted is a near-term spike in new car sales. The well-off are just as adverse to paying additional taxes as less affluent. So, Ford, GM, et al may have increrased chance of recovery in the near-term, giving them time to fully adapt to the new environment.

H. T. Love profile picture
P.S. If a vehicle is sold between inspections, the mileage recorded at that time must still be reported so that the tax can be accurately calculated. The collection mechanism might be a simple as utilizing the current state sales tax collections system to included a collection for this.

H. T. Love profile picture
First, I don't like any tax any time, especially to support government expenditures not authorized in our constitution. That said ...

Error: GPS is not needed to do a fairly effective VMT. Since all states have annual vehicle inspections, the mileage recorded at those inspections could be used to calculate the VMT. This could then be collected either at the inspection station or as an addition to license tag renewals.

This eliminates the "Intrusive" section entirely.

The advantage is that systems to implement all this are already in place and require only software changes to implement.

Another scheme would be needed for foreign vehicles.

Before finishing your article, I had already began to think about the regressive vs. progressive and varying implied cost to the infrastructure issues. I was glad to see that you also had done so. My suggested solutions follow.

First, to cover the issues of varying fuel consumption and wear and tear aspects, EPA mileage estimates (which could include some way to allow for variations, such as fuel efficiency enhancements installed on the vehicle) and gross vehicle weight could be included as coefficients in the formula producing the tax. Other refinements might or might not be appropriate, but the rough idea should adequately address the issues of wear and tear and incentives for lighter and more fuel efficient vehicles.

The results of this could be posted on the vehicle new vehicle stickers just like the EPA estimates. This would promote the increased sales of more fuel efficient vehicles at the dealers.

As to the progressive/regressive issues: the adjusted gross income and reported mileage (from the inspections) could be used at tax filing time to provide an adjustment to gross income or a tax credit. Gross income and miles together should account for the lower-income/higher-mi... driven problem.

Further, since lower-income folks often have to buy used less efficient vehicles (an unfortunate conundrum - those who need efficiency the most can least afford it) another credit could be provided whenever a replacement vehicle (the prior vehicle must be sold and carry a lower EPA rating - maybe even a weight differential could be included) is purchased that has improved EPA numbers. Again, a simple addition to the existing infrastructure of tax collection.

These steps would lower the TCO (Total Cost of Ownership) to the purchaser, providing some relief to these lower-income folks, provide a small improvement in living standards by freeing capital for other things, support national goals by encouraging purchase of more fuel-efficient vehicles and effectively address the regressive nature of the VMT.

This leaves only the breaking of the directness of the current fuel tax linkage to miles driven from the "Perverse" section to address. In our "NOW" society, we may need to balance this somehow. But if the other steps are effective, maybe not.

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