Government intervention in the auto industry has become a fact of life. But as Ontario Premier Dalton McGuinty discovered last week, there are limits to how far it can be pushed. It is one thing to prop up troubled manufacturers that are essential to the economy, but governments are liable to get themselves into trouble when they try to manipulate consumer behaviour.
Mr. McGuinty's announcement of a rebate of up to $10,000 on purchases of electric cars has been greeted by an overwhelmingly negative reaction from media, auto industry analysts and several car companies. Apart from executives with General Motors, whose Chevy Volt will likely be the first beneficiary, it has been difficult to find anyone who will praise it.
Much of this is due to a belief that Mr. McGuinty is playing favourites with GM, in which the province has invested more than $3-billion. Other manufacturers complained that the government is putting its faith in uncertain technology, favouring the Volt over such alternatives as Toyota's hybrid models, which already qualify for a much smaller rebate. (It did not help that the Premier made the announcement at a GM dealership.) "This suggests that [the government] is prepared to be interventionist beyond their aim to help the industry recover," complained Stephen Beatty, the managing director of Toyota Canada. "The question is: Is this a well thought-out industry strategy? Or is it sort of the next stage in advancing a particular product and helping a particular company?"
Still, Ontario's rebate will not be unique; other governments, including those of Britain and the United States, have announced similar incentives. The Premier appears to be under the genuine impression that, in order to remain competitive, he must match them. But to what end?
The Volt is not made in Canada, and will not be for the foreseeable future. Mr. McGuinty seems to hope that, if enough demand is created, manufacturing of that and other models will expand to his province. He is also counting on that demand helping other Ontario companies, such as those that produce battery technology. But it is a large leap of faith to believe that subsidizing the purchase of a relatively small number of cars - no more than 10,000 purchases will be rebated - will create such a demand.
As with any product, electric cars will only find a broad market if they offer quality and value compared with other options. If electric cars are an environmental and economic priority, the government would be wiser to focus allotted funding on research and development, and on ensuring that battery-charging stations and other infrastructure are in place to make the vehicles a practical option. A short-term subsidy may create an initial burst of interest, but it will do little to advance Mr. McGuinty's aim of having electric cars make up 5 per cent of vehicles on the road in 2020.
