Sky high used car prices and the shortage of cars are proving to be immensely problematic for America as a whole. If you want a deep dive on that particular issue, check out my last video. The basic problem, at the end of the day, is that there aren’t enough cars available on the marketplace. Why is this?
It is because the automotive marketplace in the U.S. is far from the free market ideal that forms the basic underpinning for America’s national identity. In fact, even RUSSIA has a more free and open marketplace for new and used cars than the U.S. does. So how exactly did this situation arise, and what are the main factors causing U.S. customers to have less choices and higher prices than their overseas counterparts?
Why is there no relief?
Well, it ultimately started with one thing. The Imported Vehicle Safety Compliance Act of 1988. What this means is that Americans, unlike Brits, Swedes, Russians, Aussies, Japanese, Chinese, Kenyans, Emiratis, Malaysians, Pakistanis, and Mexicans, cannot just import a car from somewhere else if they don’t like the vehicle selection at their local dealer, or just don’t like the system of car dealers in general. They HAVE to buy a new car from a dealer, as only vehicles that can be used legally in the U.S. are vehicles originally made to the U.S. government’s regulations.
Now, government safety regulations on cars exist everywhere. The problem is that, while other countries like Mexico, Sweden, Australia, and literally every other country in the world use a set of codified, internationally reciprocal set of vehicle safety standards codified by the U.N, the U.S. government not only DOESN’T use these regulations, but refuses to recognize them as valid.
It boils down to politics
And like America’s refusal to adopt the metric system, universal health care, paid parental leave and refusal to allow the superior Nestlé Kit Kat bars to be sold instead of the imitation, baby puke tasting Hershey ones to be sold or imported, it is a continuation of the long American tradition of doing things differently than the rest of the world, albeit, things that have already proven to work WORSE in comparison the way the rest of the world does it.
And unfortunately, not only will this commitment to doing things differently yet worse likely be spun as “American Exceptionalism” and “freedom,” but the costs of this will continue to mount upon the American people.
Which gets us back to the car shortage. If the U.S. Government were to strike down the Imported Vehicle Safety Compliance Act of 1988 tomorrow, there would be IMMEDIATE RELIEF to the used car shortage. Why?
Because the only reason the used car shortage exists is because of this act in the first place! In any properly free international marketplace, where goods can flow freely between one another, if the price of good X, with good X being any product, is cheaper in country A than country B, merchants buy up the products from country B en masse and export them to country A. The increased demand in country B will drive the price of good X there, and the inflow of good X into country A will lower the price, and this will continue until the prices of country A and country B reach parity.
It didn’t used to be this way
The used car market in the U.S. used to be open though. During the 1980s, a weak Deutschmark meant it was cheaper to buy a Mercedes-Benz in Germany than the U.S. With factory showrooms, no pushy salesmen, and lower prices, it was a no-brainer, and many parallel importers were bringing in German-market Mercedes-Benzes and undercutting the official distribution channels (i.e. car dealers) in the U.S.
However, like angry dictators that can’t get their way, U.S. dealers got salty, and eventually, were able to lobby U.S. politicians for the passage of the Imported Vehicle Safety Compliance Act of 1988; ending the free markets in the U.S. for cars. Surprise. A Big corporate interests in America conspiring to ruin life for average people in pursuit of protecting their profits. So predictable.
Currently, homologating a car for sale JUST in the U.S. can easily add an additional hundred MILLION dollars to manufacturers’ costs of developing a new car. And its not like the car industry operates on huge margins; they don’t. In fact, they are some of the lowest of any industry, only 7.5%, making them only slightly better than a grocery store!
So that huge cost just to sell a car to americans? Only worth it for the highest volume models. The result is the walmartification of the product offerings in the U.S. Cheap, big, mass market, and no specialty options and customization available. Deal with it!
Using the analogy of Japanese Cars equals Chinese Food, if the rest of the world gets the option of Peking Duck and Dim Sum, Americans are forced into the General Tso’s Chicken and Beef and Broccoli, and told by oily fossils of government officials that the Peking duck and Dim Sum are “unsafe’ and “not fit for their consumption.”
And for anyone that’s had Authentic Chinese food, the real stuff is SO MUCH BETTER than the Americanized garbage. And Authentic Japanese cars made for Japanese people are the exact way. The real deal is SO MUCH BETTER than the Americanized products passed off as “Japanese” at car dealers in America. Guess what, that Honda Civic you think is Japanese? Made in OHIO.
If that law were to be repealed, a multitude of positive effects would occur. Firstly, the current used car shortage that has kind of already existed since 2009, but only gotten worse since COVID, would be significantly eased. Why? Importers could bring in grey market vehicles from other nations that have a surplus, like Japan. And furthermore, true exposure to the international market would mean Americans would have much more choices than what they currently have in form, in function, and in pricing.
It would also allow Americans to travel overseas to purchase cars, which would open the 3rd party franchise dealer model monopoly in the U.S. up to ACTUAL competition; forcing them to improve their customer service experience and offer more competitive prices if they want to justify their existence and survive.
Exposure to vehicle forms entirely unknown to Americans, like Kei microvans and small MPVs, likely would create positive multiplier effect that would add large amounts of value in ways that couldn’t even be predicted! New industries, new jobs, and new jobs to support the new industries, all are likely should this happen.
Lastly, opening up the market would also allow lower the barrier for entry for small, upstart vehicle manufacturers, allowing them to more easily grow and develop. This would ultimately improve the vehicle quality and international competitiveness of the American auto industry as a whole.
(It is) something that former vice Chancellor of Germany, Sigmar Gabriel, summed up brilliantly when the Former U.S. President Donald Trump complained that it was unfair that Germans weren’t buying many American made cars. The answer from Gabriel? Build better cars!
Overall, Americans would benefit immensely if the Imported Vehicle Safety Compliance Act of 1988 were repealed, and the U.S. government adopted the internationally recognized UNECE regulations. Lower prices, better customer service, and better products being the big ones.