Chevy Volt Failure Shows Why Government Subsidies Are Bad

I recently argued that the Chevy Volt is a failed attempt by the government to encourage renewable technologies through subsidies. PolicyMic Pundit Travis Higgins disagrees. He thinks the Chevy Volt should win an award for 'U.S. Tax Subsidy of the Year.' I'd like to address a few of the claims he made in his post.

Higgins says that "sales of the Chevy Volt and the Nissan Leaf are up dramatically over last year" and that electric car sales will increase 82 percent next year. His claim is at odds with the facts. The first year of production was 2011, and sales fell far short of expectations. Chevy forecasted to sell 10,000 Volts, but it sold only 7,671. Slow sales were the reason why GM recently decided to shut down production. 

Additionally, Higgins highlights a study that says that nearly 60 percent of subsidies goes to those who need it the least. Why does he think that subsidies for electric cars are any different? Subsidies for the Volt exclusively benefit people of higher incomes. The average household income of Chevy Volt buyers is $170,000 per year, or households in the 93rd percentile of earnings. 

One reason the Volt is not viable is that cheaper substitutes exist. Consumers have to shell out $41,000 for a Chevy Volt, but can buy a Toyota Prius for less than $30,000 or a Toyota Camry Hybrid for $26,000. Furthermore, many gasoline-only cars are just as efficient as the Volt and cost much less. The gasoline-only Chevrolet Cruze gets up to 42 miles on a gallon of gasoline at half the price. 

This money does not come out of thin air, but at the expense of other things. The $3 billion subsidy could have been spent on a myriad of other better things, such as education.

Electric car technology isn't there yet, but it will be someday. As gas prices increase, the profit incentive to develop an electric car that is affordable and attractive to consumers will grow. Any company that develops an electric car that goes more than 40 miles per charge and doesn't catch fire stands to profit. 

If the government were serious about encouraging technological development, then it should get out of the way. That means reducing barriers to starting a business, such as lowering the federal corporate tax rate, which would attract more investment from abroad. 

Photo Credit: Wikimedia Commons