Car Prices Would Go Down… If The Free Market Were Allowed to Operate

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 price paid of just over $30k.

Part of the reason for the ballooning cost of new cars is the balloons in new cars. Most 2015 model cars have at least six of them now and several have eight or more. At least one has 11. But it’s much more than just the air bags. The cumulative cost-per-car of all the government’s various mandates – including the conflicting mandates regarding crashworthiness and fuel economy (it’s hard to make a “safe” car that also gets good mileage) probably amounts to more than the cost of  cars themselves in the era before mandates (rather than consumer preferences) effectively dictated vehicle design.

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 government mandates were to be un-mandated. If it were legal for a latter-day Henry Ford or Ferdinand Porsche to bring to market something basic and inexpensive, a latter day Model T or VW Beetle. The kind of car they don’t make any more. Because they can’t sell such cars anymore.

But let’s imagine they could – legally. That a man would not face  prison for building and selling a simple car shorn of 40 years’ worth of Uncle’s Edicts. No air bags, crumple zones, whiplash headrests, back-up cameras or tire pressure monitors. Not glamorous, not fast – and yes, perhaps not as “safe” (if you were to wreck it) as a government-mandated car. But simple and inexpensive – as cars once were – back when people could decide for themselves which mattered more: the built-in “safety” of a big, heavy car… or the low cost (and high mileage) of a basic, inexpensive, lightweight car. Options available, but nothing shoved down your throat. Pick and choose what you want.

What sort of pressure on the cost of cars generally would the availability of simple, inexpensive and very lightweight cars on the lower end of the market bring to bear on the cost/complexity (and fuel economy) of cars higher up the food chain?

Would shifting the lower end of the new car market toward the more affordable affect the affordability of all cars?

Probably, it’d be exactly like the pressure we see acting on the cost of electronics such as computers – which are among the very few consumer products whose design is not yet utterly dictated by the government rather than the market.

The existence of decent $300 machines exerts definite downward pressure on the price of machines higher up the food chain. Computers generally cost less today than they did in the past.

It is harder to charge higher prices – or rather, get people to pay them – 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, certainly. Some cars would still come with them as part of the standard equipment package. But positive (for consumers) pressure to keep costs down would exist simply by dint of the fact that consumers 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; they could not dictate terms.

When there’s an alternative – when there is free choice – people get more choices. Better ones, cheaper ones.

It is almost a mathematical axiom.

But when every single driver is told he must buy insurance (or else) 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 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 2002, you could buy an original model VW 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  about $3,000 right now.

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 $5,500 or so – 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 starts around $13k. This is considered “cheap” by today’s standards, but $13k is more than twice what our hypothetical government-free car would cost.

Now imagine not being forced to insure it.

And being able to fix it yourself.

We’d all have a lot more money in our pockets – no matter which car we ended up buying. And most valuable of all, we’d have freedom to choose.