The Virtue of Pressure

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How much would the average new car cost if the least expensive new car you could buy cost around $5,000?

Probably, a lot less than the current average (2012) of just over  $30,000. Yeah, you read that right – and it’s up more than $1,200 from 2011.

Part of the reason for the ballooning cost of new cars is the balloons in new cars – six air bags, for example (only two are formally required by law, but six is becoming the de facto standard – and several 2013 models have eight or more). Not just the bags, either – but all the rest of it, too. I’ve written before about this. About the cumulative cost-per-car of all the government mandates. The total cost of the mandates is probably more than the cost of cars themselves in the era before mandates (circa pre mid-1960s). But that’s not what this column will be about.

Today’s column is about what the effect on new car prices generally would be if all the government mandates were to be un-mandated. If it were legal for a latter-day Henry Ford or Ferdinand Porsche or Hans Ledwinka to bring to market something basic. You know – the kind of car they don’t make any more. Because they can’t. But let’s imagine they could – legally. That a man would not face The Goon Squad (and prison) for building and selling a simple car shorn of 30 years’ worth of Uncle’s Edicts. No air bags, crumple zones, whiplash headrests, back-up cameras or tire pressure monitors (just for openers). Not glamorous, not fast – and yes, not “safe” relative to the government-mandated car of The Now. But simple and inexpensive – as cars once were back then, when people could decide for themselves. (Just as they are still allowed  – for now – to decide to live in a “less safe” but less expensive neighborhood.)

What sort of pressure on the cost of cars generally would the availability of such a car on the lower end of the market bring to bear? Put another way, how would shifting the lower end of the new car market several steps to the left, toward the more affordable, affect the affordability of all cars?

Probably, it’d be exactly like the pressure we see  acting on computers.The existence of decent $300 machines exerts pressure on the price of machines higher up the food chain. Downward pressure. It is harder to justify higher prices given the existence of serviceable lower-priced alternatives.

Imagine how the same pressure could work to our benefit when it comes to cars.

If air bags (and so on) were optional – as they were once, a long time ago – many cars would still offer them. Some would still come with them as part of the standard equipment package. But there would be a great deal of pressure to cut the costs – and make them more affordable – simply by dint of the fact that people could say no – could buy a car without such cost-adders. In the same way – and for the same reason – that car insurance used to cost less, before everyone was required to buy it. The insurance companies had to cater to customers – and could not dictate terms. When there’s an alternative – when there is free choice – people get more choices. And choices that cost them less.

It is almost a mathematical axiom.

But when every single driver is told he must buy insurance – and that any new car he buys must have air bags (and all the rest of it) he will inevitably pay more – precisely because he  has no alternative. And because there’s no incentive for the car companies to lower costs less when they know they have a captive audience. Take it – or leave it.

We can’t know exactly how much less the average new car would cost absent all the government-mandated folderol – and given the pro-consumer incentives that would exist in the absence of the folderol. But we can make an educated guess. Until 2003, you could buy an original Beetle – the (mostly) government-free model first designed back in the 1930s and which put millions on wheels the world over – for about $7,000 U.S. in Mexico. In India, you can buy a modern take on the VW concept – the Tata Nano – for $3,000.

Let’s split the difference and say for the sake of discussion that a no-frills, A to B commuter car could be put on the market for $5,000 – an entirely reasonable estimate in the absence of government mandates. Now contemplate what the mere presence of such a car would do in terms of applying market pressure to today’s least-costly government-mandated new cars – the most inexpensive of which (Nissan’s Versa 1.6) starts around $11k. This car has no radio – just the wiring necessary to accept one. No power anything. Plastic wheelcovers. Yet it still costs more than twice what our hypothetical government-free car costs. Because like all new cars, the Versa must have at least two air bags, “safety” seats, a fairly large and heavy body (to successfully pass the government’s crashworthiness folderol) and etc. and so forth.

These things – roughly - double the retail price of a no-frills car.

Absent the legal requirements that all cars must have all the equipment currently mandated by government, the mere existence of our hypothetical $5k bargain buggy as a possible alternative would exert enormous pressure on Nissan (and the rest of them) to find some way to lower the cost of their not-so-bargain buggies. Because otherwise, they’d find themselves sans buyers – or sans a goodly number of them. Probably, they’d make the air bags, back-up cameras, tire pressure monitors and so on optional, too.

And what’s so bad about that? If the Clovers are correct  – and everyone (or even most people) really do want air bags, etc., then surely they’d buy them of their own accord, without being forced to. And if not? Well, isn’t that – properly speaking – their right? To choose? And wouldn’t we all benefit from that – no matter which choices free individuals ultimately make?

If the equipment passes cost-benefit muster, people will usually say yes. Without coercion – because it’s in their interests to do so.

And if they say no, then costs go down for us all.

Which is a benefit for us all.

Throw it in the Woods?

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eric

Author of "Automotive Atrocities" and "Road Hogs" (MBI). Currently living amongst the Edentulites in rural SW Virginia. 

  22 comments for “The Virtue of Pressure

  1. Mark
    December 11, 2012 at 12:19 pm

    OK, I’ll bite, why not kit cars for those with some mechanical skills? I know I’ll be corrected if I’m wrong but, don’t most states allow such home built cars to be licensed? It would be interesting to see what sort of 2-seat commuter car you could come up with. Heater, radio, crank windows or maybe even side curtains. I know it wouldn’t be for everyone but, when cars such as the Locost are out there surely a milder version could be done quite inexpesively.

    • December 11, 2012 at 12:23 pm

      Kit cars are still legal – for the individual to build for his own use.

      But you cannot manufacturer them for sale to the public.

      • Mark
        December 11, 2012 at 12:24 pm

        RATS!!! FOILED AGAIN!!

      • December 11, 2012 at 9:51 pm

        But you could manufacture the kits themselves, sans final assembly of the major components, correct? We’d just need to know exactly what percentage is the cutoff for what constitutes a kit vs a complete vehicle.

        It’s certainly something to consider.

    • MoT
      December 12, 2012 at 2:09 am

      I built a kit car back in the early 80′s and I swear I’d never do it again.

    • January 1, 2013 at 12:20 am

      Dear Mark,

      “… don’t most states allow such home built cars to be licensed?”

      They do. And that is the problem.

      They “allow” it.

      That means they can “disallow” it.

      As long as people are sheeple instead of people, and perceive their rights and privileges, they will remain at the mercy of “The Government’s” whims.

      • January 1, 2013 at 12:20 am

        * rights as privileges

  2. Tinsley Grey Sammons
    December 11, 2012 at 2:43 pm

    In 1963, with a $200 employee discount I paid $1475.00 for my first new VW Beetle.

    Were it possible to purchase a new ’67 Beetle I would purchase one today and use it when it was cool enough to drive with the windows up*. They were less than $2000 in 1967.

    I owned several Beetles over the years and they were the only vehicles that I actually loved.

    Tinsley Grey Sammons

    *In my opinion the Beetle did not adapt well to the installation of A/C. Nor could the VW be simply upscaled to accomodate a factory installed A/C because of the difficulty inherent in cooling a larger displacement air cooled engine. Displacement increases by the cube, therefore even a small increase in displacement means MUCH more heat that must be dealt with.

    • December 11, 2012 at 4:19 pm

      Ditto – only my ’73 was bought used in 1989 for $700!

      AC was a bad idea in old Beetles for two reasons: The engine just didn’t have sufficient power to spare and the unit itself created overheating issues.

      I was fine driving mine in summer traffic, so long as traffic kept moving!

  3. December 11, 2012 at 3:50 pm

    $5,000?? I think you have vastly underestimated the impact of inflation, and the UAW, to mention just a couple of factors.

    I’d say double that, at least.

    In your own words, you’re talking about the “average” price of regulation free cars. So it would be misleading to be focusing only on the cost of the tiniest, most stripped down rat box that could be built.

    • December 11, 2012 at 4:17 pm

      I dunno, Mike –

      The Indian Tata sells for the equivalent of $3,000 US.

      Granted – conceded – it’s a a puny, rickety thing. But it – or something like it – could work as an A to B commuter car, not unlike low-cost 150 cc mopeds.

      As far as the UAW: They don’t have a lock on labor (thank god). And in any event, a really simple car could probably be put together in modular form, and mostly by machines.

      • methylamine
        December 11, 2012 at 4:58 pm

        That name–Tata–just kills me.

        Q: “How much for that Tata?”
        A: “Don’t you want both Tatas?”

        But the best part? An Indian carmaker–the former colonial India, formerly subjugated to the formerly most powerful empire on earth–owns said ex-empire’s flagship car brands.

        Priceless. Just…delicious.

        Meanwhile the limey bastards fester in their rotting police-state nanny hell-hole, with mandatory in-house cameras watching you the first six months of parenthood–to protect the children, who now are openly, plainly, the property of the State.

        Parenthood has become the perfect fascism. Privatizing the profits–the State gets to indoctrinate them to love It not You–while you pay for their upkeep until the age they’re useful to the State.

        • DD
          December 12, 2012 at 6:15 am

          Call it what it is: Animal Husbandry.
          The Brits are productive tax livestock and just want to make their owners happy.

  4. Rooney
    December 11, 2012 at 6:07 pm

    Any thoughts on how state mandated insurance would handle a $5000.00 basic-mobile?

    • December 11, 2012 at 6:19 pm

      Mandated insurance must also be thrown in the woods!

      • Rooney
        December 11, 2012 at 7:12 pm

        LOL…You’ll get no argument from me on that score, Eric. But I kinda think that before the insurance companies roll over and go away they would insist on huge medical premiums and collision insurance mandated for the kind of cars you describe. In that way they could mitigate the financial and operational advantages such a vehicle would provide. Having a $5000.00 car doesn’t fly if mandated insurance adds another $10,000.00 to it’s operational costs per year.

        And yes, mandated insurance should be thrown into the woods. But as entrenched as the industry is with state and federal government I just don’t see any way to get the parasites off that particular pooch.

        • December 11, 2012 at 9:14 pm

          Yup – and that’s part of the reason we’re all screwed. It is damn near impossible for the average person to accrue any savings (wealth) when he is forced to spend probably at least $100k over his lifetime on various forms of mandatory insurance.

          • jeff
            December 13, 2012 at 12:49 pm

            I think its interesting, that we buy ever increasing amounts of mandatory insurance, yet never quite get clear of imminent disastrous liability. It may be too early in the day for me to think clearly about this, but it seems like we’ve reduced personal risk (by constraining each other’s actions), but at the offsetting cost of increased liability. If you are genuinely sick, you will be financially crushed absent spectacular wealth. Paying $10-$12K per annum to the medical establishment does not fix this. Another example is homeowner’s insurance. The liability covereages are pretty frikkin huge, as are premiums now. But if a litigous nimrod ‘guest’ does something stupid and gets hurt on your property, the liability issues are serious business.

  5. BrentP
    December 11, 2012 at 6:42 pm

    The pressure in a market absent of regulation is more for less. You have to give the satisfied customer a reason to buy your new product. If you offer him the same thing he is not going to buy. If you charge him (too much) more than last time he won’t likely buy. Every year more for less in a compounding way. That’s how the market is. 2012 would be a considerably larger change from 1972 as 1972 was from 1932 and 1932 from 1892.

    Now cars have additional pressure. The used market. How are you going to sell a featureless new car that lacks the power and performance of the more expensive vehicles out there, which these cheap $5000 (2012 FRN) vehicles do, when they can buy a used vehicle that is superior in every way for the same money? Your market is the people who want a new car but are too cheap to spring for any extras. But here’s the rub, they usually want a warranty too. A good one. That too costs money. Not only to engineer the car to minimize warranty costs but charge enough for the car to pay for the warranty costs that happen. Suddenly the market has shrunk even more for that $5000 car.

    Now if we were totally absent of government interferences our productivity would make us live much better than we do today. Our productivity stolen by inflation. There would then be a market approaching zero for such vehicles in the USA. Just about everyone would have grown to a level of wealth that they could afford better in some shape or form even if it was used.

    What would cars look like in such an environment? They would have at least as much stuff from a performance standpoint. They would perform better and be cheaper. The market would refine ideas where government freezes them to a large extent. Automakers have always tried to make cars better in every aspect including safety. The problem was often selling what they came up with. There might be a few bottom feeder cars on the market that fit this basic transportation idea. Not many would actually buy them and they would likely be imported in small numbers from other markets. Cars would look a lot more like other industries than they do now.

    Also keep in mind that if we had a real libertarian environment the emissions requirements would remain high. Property rights based pollution law would be very strict. Without some of the modern day political absurdities but still rather strict.

    The modern car would be much like today’s without the distortions. They would be safer overall, less in some areas more in others. They would be cleaner and get better fuel economy overall. The tests they would pass, the standards they would live up to, would be more realistic and driven by the manufacturers internally and by groups like SAE. They would change with the times instead of being frozen in ages past as they are with government. We certainly wouldn’t be living with things unchanged from the 1930s or whenever as we do today.

  6. Pedro
    December 13, 2012 at 7:16 pm

    $30k is the average selling price for a new vehicle when the average american individual income is roughly $35 (before taxes). It’s like the housing bubble all over again.

    Eventually we will have another credit crisis and this whole shit-show will cease to exist.

  7. Tor Munkov
    January 12, 2013 at 12:15 am

    “We(Europe) are copying the Ming empire
    Even a global optimist can foresee absolute as well as relative decline for Europe if it continues to emulate the Ming Empire:

    Ming the Merciless – the O.G. Darth Vader from 1938
    http://www.youtu.be/ngQG7lWWmBI

    ‘A “rational optimist” like me thinks the world will go on getting better for most people at a record rate, not because I have a temperamental bent towards good cheer but because of the data. Poverty, hunger, population growth rates, inequality, and mortality from violence, disease and weather – all continue to plummet on a global scale.’

    A global optimist can still be a regional pessimist…
    http://www.rationaloptimist.com/blog/global-outlook-rosy-europe's-outlook-grim.aspx

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