15 more years, and something about car prices

So here is a story that will warm Steve’s heart.

In the dramatic crescendo of the 2016 elections that gave Trump to the United States and the world, very possibly for sixteen years (the President’s re-election committee is already hard at work, while his daughter Ivanka Trump is duly apprenticed in the White House that, according to my sources, she means to occupy as America’s first female President), none of the countless campaign reporters and commentators is on record as having noticed the car “affordability” statistics distributed in June 2016 via www.thecarconnection.com. Derived from very reliable Federal Reserve data, they depicted the awful predicament of almost half of all American households. Had journalists studied the numbers and pondered even briefly their implications, they could have determined a priori that only two candidates could win the Presidential election – Sanders and Trump – because none of the others even recognized that there was problem if median American households had been impoverished to the point that they could no longer afford a new car. This itself was remarkable because four wheels and an engine might as well be grafted to Homo americanus, who rarely lives within walking distance of his or her job, or even a proper food shop, who rarely has access to useful public transport, and for whom a recalcitrant ignition or anything else that prevents driving often means the loss of a day’s earnings, as well as possibly crippling repair costs. But even that greatly understates the role of automobiles in the lives of the many Americans who do not have private jets and do not live in New York City or San Francisco, for whom a car provides not only truly essential transport, but also the intensely reassuring sense of freedom depicted in countless writings and films, which reflect the hard realities of labour-mobility imperatives even more than the romance of the open road.

Will Ivanka be the first female US president? Maybe – far too early to speculate, but I found the story about car prices to be far more interesting.

The mass exclusion of Americans from new car ownership is the result of two converging phenomena, only one of which was recognized by Hillary Clinton, though scarcely emphasized in her identity-focused campaign: wage stag­nation. Sanders and Trump did not hesitate to blame that relative impoverishment on the exposure of the least agile of Americans to international competition, with the resulting de-industrialization that translated millions of Americans from $20-to-40-an-hour factory jobs to miserably paid service jobs. Beholden to the sanctity of free trade, the Clinton crowd even more than the candidate herself blamed the lethargy of the TV-watching, beer-drinking, gun-owning, church-going, and cigarette-smoking “deplorables”, who unaccountably failed to avail themselves of the wonderful opportunity to leave boring assembly-line jobs or downright dangerous coal-face or oil drilling jobs to become fashion designers, foreign-exchange traders, software engineers, or even political campaign operatives.

It was the other phenomenon, the other blade of the scissors that cut off the possibility of new car ownership for more and more Americans that Trump squarely attacked as Sanders did not and could not: the regulatory regime that has been relentlessly forcing up new car prices from the 1977 average of $4,317, equivalent to $17,544 in 2016, to an actual average price today that exceeds $30,000. Those regulations prescribe that American cars must be very, very safe, and steadily more demanding safety requirements have been forcing up manufacturing costs: the latest addition is the provision of rear-view cameras in all cars that will be mandatory in 2018, the result of an Obama decree prompted by the campaign started by a wealthy driver who had suffered the tragedy of killing his own young daughter while reversing. Because of his suffering, and his energetic lobbying, and because of Barack Obama’s enthusiasm for promulgating more regulatory decrees, in 2018 the additional cost of those rear-view cameras – only a few hundred dollars – will deprive thousands more households of the chance to buy a new car.

I don’t know the politics of new car prices in Australia – but I suspect the politics of energy prices may play out similarly. Right now the Liberals don’t have the stomach for a knock-em out, drag-em out fight on electricity prices, but that is something they should think about, if they want to stay in the winners circle (so to speak).

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39 Responses to 15 more years, and something about car prices

  1. feelthebern

    Sure the Libs are for a fight on energy prices.
    Knock ’em, Sock ’em Pyne is ready.

    http://images.watoday.com.au/2013/05/28/4444951/art-353-pyne-300×0.jpg

  2. Rafe

    Power prices and border security were always going to be king hits for the coalition if they want to use them.

  3. don coyote

    If I remember correctly, John Howard put the kybosh on direct importation of 2nd hand cars as it would cause unemployment for used car salesmen. Tony Abbott was going to repeal that policy, but changed his mind?
    Japan has car registration rules which produces a glut of late model used vehicles, cars and vans, at knock-down prices. A great opportunity for COL reduction.

  4. Infidel Tiger 2.0 (Premium Content Subscribers Only)

    The Libs are actively trying to put a tax on all new cars and have policies which directly increase the price of electricity.

    They should die in a fire.

  5. A H

    If we could allow parallel car imports that would give a boost to car affordability. So there is a clear means of lowering vehicle costs in Australia.

    I predict nothing will be done about the energy issue. Energy prices will cause the CPI to increase and will be a factor in the RBA increasing rates. This will at last cause real estate to fall. At this point people may actually start asking questions. Until then the general person won’t bother to care about energy prices.

  6. incoherent rambler

    The screams about energy bills will start about, now.
    Winter bills are a little delayed.

    And yes the Libs dont have the brains or heart to fight an election on fixing the energy mess they have caused.

  7. Razor

    Makes me feel good too Sinc.
    The news on mortgage stress even in the now is not good doubt about with an interest rate increase of .25% in the environment of must have rises in the price of electricity and gas and a cold winter and flat wages and increases in fresh food prices and increase in car prices Noticeable) and increase in the price of other services (rates, tradies, rego, insurance (house and car and medical). All costs (except and momentary drop in petrol) have risen.

    The car dependency for work is probably worse here for work than in the U.S. Our cities are more spread out and transport services are primitive cf to say London or NY.

    I don’t think the Oz is gonna make the end of the year out in good form.

  8. John constantine

    The poverty bomb has gone off in Australia with a profitless boom.

    Only those feeding off the trillion dollar debt funded population Ponzi scheme are in good times that will never end

  9. Razor

    Only those feeding off the trillion dollar debt funded population Ponzi scheme are in good times that will never end

    To combat the “will never end”anger that I get about the greed of the Ponzi users I choose to strongly believe in Karma. I visualise that they are confident so much of their financial management capability that they invest bubbles exclusively, believing that they will know (before anyone else) when to pull out. Karma says that their greed will blind them in the end.

  10. .

    Andorra seems better and better.

  11. Boambee John

    Stop all unskilled immigration, including “refugees”, now.

    That will ease pressure on house prices and infrastructure costs, and give a bit of breathing space.

    It will also wedge the Liars, who will have to antagonise a lot of formerly “rusted ons” in the outer suburbs to appease the inner city feelz gooders and the ethnic lobby groups if they argue.

    The Slime should already be wedged on this, but they abandoned the whole “zero population growth/ecologically sustainable population” theme 20 years ago, when the watermelons replaced the genuine, if deluded, environmentalists.

    Tough luck for those riding on the “trillion dollar debt funded population Ponzi scheme”, but they are essentially all Liars or Slime supporters.

  12. Texas Jack

    Nice try, but the current band of utterly useless dolts who warm seats in the name of that defunct operation once known as the Laboral Party couldn’t capitalise on Bill Shorten realising he’d actually been born and raised in North Korea.

  13. Bryn

    So a rear view TV is a luxury? Just try it when squeezing between the modern behemoths in a parking lot . Fantastic. My Mazda with the camera fitted is light years ahead of that column gear shift Kingswood I sported in the 70s. Are you all so anti progress? Now if I had a Porsche and the road to myself …..

  14. Andrew

    I’d suggest that if a reverse cam adds $300 to the cost of a new car and avoids just one $6000 crash in the life of every 20 cars (about 300 driving years) then it has no lifecycle cost at all. Then the deaths and injuries prevented are a free bonus.

  15. Rabz

    New cars, like new dwellings, are subject to exorbitant taxes.

    I have bought one new car in my life (never again) and compared to O/S prices of new equivalents the Oz version was significantly more expensive and that consequently the tax on the purchase price of the vehicle was around 30%, possibly more.

    Remember, one of the first things rudd did when elected was to impose increased taxes on “luxury” cars.

  16. IDefender of the faith

    The hazard of populism is that the left is much more willing to give away free money. Trump played the blame game but Sanders and Corbyn and Shorten will print money.

  17. Art Vandelay

    Those regulations prescribe that American cars must be very, very safe, and steadily more demanding safety requirements have been forcing up manufacturing costs

    Obama’s fuel efficiency standards have had an even worse impact on the affordability of cars. Trump ordered a review into future standards with a view to rolling them back.

  18. Squirrel

    As others have already noted, similar things could be said about ‘Straya – cars and housing – and only one of the major parties is saying anything about housing which will resonate with the punters (which might have something to do with that persistent 53-47 opinion poll trend)

  19. Bruce of Newcastle

    median American households had been impoverished to the point that they could no longer afford a new car

    It’s worse even than what is made out in the article.
    Subprime housing loans caused the GFC. Now the next problem is subprime car loans.

    FT: US Banks Fear Subprime Bubble in $1.2 Trillion Auto Loans Market (30May)

    Big U.S. banks reportedly fear consumers have taken on more debt than they can handle as the $1.2 trillion car loan market shows warning signs of a bubble similar to the subprime mortgage crisis.

    “Lenders piled into the sector in the years after the financial crisis, as low defaults and an improving economy encouraged them to focus on a market that performed relatively well as mortgages soured,” the Financial Times reported.

    Total loans across the industry rose to $1.17 trillion at the end of the first quarter, according to the New York Federal Reserve, up almost 70 per cent from a trough in 2010.

    Lenders are belatedly tightening loan requirements, but only after $200 billion has left the building.

    Lenders hit the brakes on subprime auto loans (7 Jun)

    Lenders and finance companies have dramatically pulled back the number of loans they issue to borrowers with the poorest credit records.

    Despite the slowdown in new loans to subprime and deep subprime borrowers, those with the poorest credit ratings still owe more than $213 billion on the vehicles they’re driving, just under 20 percent of the $1.08 trillion owed on open auto loans.

    So come the next recession, which a lot of people think is imminent, those subprime borrowers are going to be out of a job and their car is going to be repossessed. Then auto finance groups will go bottom up because the resale price for used cars will crater like a SUV dropped from 10km up.

    But let’s do what the Left wants and ban cheap gasoline cars and make everyone have to buy useless overpriced electric ones.

  20. Empire GTHO Phase III

    So a rear view TV is a luxury? Just try it when squeezing between the modern behemoths in a parking lot . Fantastic. My Mazda with the camera fitted is light years ahead of that column gear shift Kingswood I sported in the 70s. Are you all so anti progress? Now if I had a Porsche and the road to myself

    Let me get this straight: you can’t park a car without a camera, so the camera should be compulsory for all?

  21. I have bought one new car in my life (never again) and compared to O/S prices of new equivalents the Oz version was significantly more expensive and that consequently the tax on the purchase price of the vehicle was around 30%, possibly more.

    Not just cars. I walked into an electrical goods store here in Holland yesterday and it was profoundly depressing. The good wife and I purchased some new top of the line AEG washer and dryers a few years ago which cost us close to 5 large. We’d struggle to spend 2 large for the same stuff over here.

    They also have the top of the line Samsung fridges for under a grand Aussie. They’re at least twice as much in Australia, which is weird seeing as they have to travel a lot further to get to Europe from South Korea.

    I asked the good wife her thoughts on the matter. Her take was that in Holland there is much more competition and the government doesn’t let the big operators rig the game.

    Gerry Harvey should go die in a grease fire.

  22. Bruce of Newcastle

    Oops, I forgot to add – even with the easy money US car manufacturers can’t sell their cars.

    GM Reports Record “Channel Stuffing”: Dealer Auto Inventory Highest Since June 2007 (3 July)

    Of note, we highlighted GM, one of the few OEMs to actually disclose dealer inventories in monthly sales releases, which reported that May inventories increased to 101 days (963,448 vehicles) from 100 days at the end of April and just 71 days (681,402 vehicles) in April 2016.Indicatively, analysts say an overall inventory level of 60 to 70 days is healthy. 100 is not. GM management was eager to deflect attention from this troubling statistic, and said that soaring inventories are normal and, somehow, “reflect strong sales”, as per the press release: “As planned, GM’s inventories reflect strong sales, lower car production and strategic, launch-related growth in truck and crossover stocks.”

    Or maybe not, because as Automotive News reporter Nick Bunkley pointed out something troubling: with 935,758 unsold GM units collecting dust in dealer lots at the end of June, this was the highest inventory number in 9.5 years, the highest since November 2007, one month before the recession began.

    I suspect the ‘animal spirits’ associated with Trump’s election are keeping the US from falling into a recession. But the indicative figures aren’t great. Making this worse is that the US Senate just now failed to pass a partial repeal of Obamacare’s worst bits. The onerous impacts of Obamacare on workers’ hours is one reason why ordinary US workers can’t afford a car. When you are only allowed to work 29.5 hours a week, then have to pay for insurance out of that reduced paypacket, you aren’t going to have much spending money.

    Blame McCain: he was the swing voter who killed the repeal bill.

  23. Chris M

    compared to O/S prices of new equivalents the Oz version was significantly more expensive

    Australian Design Rules for a start.

    A rear view camera might add $20 to manufacturing cost but likely less. Technology has become crazy cheap and is a great way for manufacturers to improve the next model with reasonably minimal production costs.

  24. Mark M

    Queensland to build one of the world’s longest electric vehicle highways.

    The Queensland stations, which will range from the capital Brisbane to the small sugar town of Tully, would be powered with “green energy” bought through renewable energy credits or offsets.

    The stations, which recharge a vehicle in 30 minutes, will offer free power for at least a year …

    https://www.theguardian.com/australia-news/2017/jul/27/queensland-to-build-one-of-worlds-longest-electric-vehicle-highways?CMP=share_btn_tw

    We’re saved.

  25. Empire GTHO Phase III

    The stations, which recharge a vehicle in 30 minutes, will offer free zero price 100% taxpayer subsidised power for at least a year …

    Is there a state in Australia that isn’t governed as a corruptocracy?

  26. Hugh

    The state thinks if you have a NEW car it MUST jump through all these expensive safety hoops … but that it’s perfectly fine to be on the road with an old, much less safe car … or, orders of magnitude worse (safety-wise) a motorbike … or for heaven’s sake, a bicycle !!!

    I’m not arguing for hyper-safety. Just pointing to more evidence that the state is schizoid.

  27. RobK

    Supplementary question for the economist types:
    Did the US “Cash for Clunkers” programme have an impact on car prices, and how long would that impact last?

  28. So come the next recession, which a lot of people think is imminent, those subprime borrowers are going to be out of a job and their car is going to be repossessed.

    And they won’t even be able to sleep in their car when they are evicted. You’ve got to hand it to the left, they’ve become so much more inventive at killing the proles in the 21st Century.

  29. custard

    Australia represents around 1% of global car production/sales. Any notion that we have any influence in what type of vehicles we get here and what standard they adhere to are false. Basically we are hitched to Europe and their vehicle standards.

    The Australian car market is still at a tipping point in terms of its sustainability as it stands. There are currently 3 months of sales of brand new cars (reported as being sold) lying idle in dealer stock with no owner.

    The banks will determine what happens next.

  30. Jimf

    Other contributors who mention the “grey market” opportunity are spot on. NZ for example has no problems with allowing good quality 2nd hand cars to be imported from other markets at affordable cost. Stop protecting the car dealership sector FFS. Added bonus spin off is the opportunity this would afford independent dad and mum garages to fight back against closed Loop predatory OEM dealerships with 5+ year capped service BS killing independent mechanics .

  31. Rabz

    Custard – any non collectivist worth their salt would advocate that taxes on motor vehicles and petrol should be slashed.

  32. .

    Did the US “Cash for Clunkers” programme have an impact on car prices, and how long would that impact last?

    Of course it did, but did that go through exchange rate pass through or the highs and lows of the dollar?

    All of these things have their own impacts, the extent of which and how they interact, their differing elasticities and so on is an empirical question.

    Likely there was a small near negligible effect on Australian prices downward as more new cars were made at subsidised prices. Americans paid for that.

  33. RobK

    Thanks Dot,
    I was in the US Midwest as a high school exchange student during the mid seventies. At that time a student could buy a 5-6 year old Oldsmobile for $400-500, a little bit of salt rust, but basically a mighty car for the money. Students could afford something like that simply working at the self serve gas station several nights a week. I wonder if taking many of the older, but still viable stock off the road over there would have actually pushed up the low end second hand market by diminishing that stock available to lower income workers.

  34. custard

    Rabz my comment is simply a snapshot as to where the industry finds itself right now. Car dealerships are presently unsustainable and once the banks withdraw their support (I can’t see it remaining) what will happen will happen.

  35. gowest

    A clear explanation from EDWARD N. LUTTWAK – loved the crotch grabbing! As for the Dynasty – a man who plans 6 years ahead to get the presidency and then achieves it with the press going all in for the other side has to be a shoe in to outdo the Kennedy and Clinton families.
    As for the references to cheap maids and labour, at least we now know the real reason why all the elites and lefties want high migration – the reduced income and job opportunities are already happening in Oz, the creation of the servant class is well underway.

  36. Rabz

    Custard, what are the AusCons positions on the matters I mentioned above?

  37. Haidee

    Our electric vehicle highway: Stations will offer free power for 12 months.
    Down the track, low income earners will ‘need government assistance’ to switch to electric vehicles,
    if there’s anything left in our coffers after Pony Girl departs.

  38. .

    I wonder if taking many of the older, but still viable stock off the road over there would have actually pushed up the low end second hand market by diminishing that stock available to lower income workers.

    Of course it did. Like how maximum prices for livestock caused shortages under FDR, the farmers just slaughtered them as they cost too much to keep.

  39. Pyrmonter

    Couldn’t see it, but how is the “average” car price determined? If a simple average of those sold, is it a “bad” thing if more buyers are buying BMWs? Determined on a like-for-like basis, I doubt car prices have risen anywhere nearly as much in real terms (if at all): remember what car you got for your $17,000 odd in 1975.

    Russ Roberts had a few thoughts on this a decade ago: http://cafehayek.com/2006/09/cpi_bias.html

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