We don’t normally think of the federal government dictating the prices of the cars we buy. That’s something that’s supposed to be negotiated between buyers and sellers.
Well, Washington doesn’t literally set the exact price for which a given automobile will sell, but through regulations it can and does sharply increase the price of cars.
Take last year’s “Cash-for-Clunkers” program created by Congress. The program let owners of many types of used cars trade them in for slightly more fuel-efficient new vehicles. Buyers got a hefty rebate of up to $4,500 paid for by U.S. taxpayers – including millions of taxpayers who did not get any benefit from the program. It was a great deal for automakers but not for the American people as a whole.
And there was a big catch: Dealers that accepted cars in the Cash-for-Clunkers program were forbidden to resell them. Because the cars did not get what Congress considered to be high enough gas mileage, the trade-ins had to be destroyed, literally by the hundreds of thousands.
That took vast numbers of completely serviceable used cars off the market, and then the normal law of supply and demand took over. With there being far fewer used autos from which to choose on the nation’s car lots, the prices for the used cars that were available went up.
That is doubly painful now, because in this time of economic crisis, many Americans who might otherwise buy new cars are looking around instead for used cars. And they are having to pay higher prices for those used cars than they would have paid if Congress had not intervened and distorted the market through Cash-for-Clunkers.
The higher prices and limited supply are likely to last for quite a while.
“It’s a trend we won’t see reversed anytime soon,” Jeannine Fallon of the automobile website Edmunds.com told the Times Free Press.
But it’s a “trend” that needn’t have happened at all if government hadn’t interfered in the free market.