How Government Is Raising the Price of Cars

When the government meddles in the auto industry by raising efficiency standards, consumers lose.

By + More
The Ford Fusion is launched in New York's Times Square on Sept. 18, 2012.
The Ford Fusion is launched in New York's Times Square on Sept. 18, 2012.

Gregg Laskoski is a senior petroleum analyst for GasBuddy.com.

Sometimes when you hear why government policies and officials do what they do, and the results (too often) are outcomes that are opposites of what they intended, you feel like saying: "Thank you for your help, but isn't there something far away that's more deserving of your time?"

I'm guessing that's how many U.S. automotive industry executives feel today. They must be thinking, "With friends like these, who needs enemies?"

[See a collection of political cartoons on gas prices.]

We have a federal government that is eager to impose corporate average fuel economy, known as CAFE standards that will bring the corporate average fuel economy to 54.5 miles per gallon by 2025 regardless of whether automakers can cost-effectively meet the requirement or consumers demand it. Is anyone eager to absorb the sticker shock their newfound fuel efficiency might bring? It doesn't matter.

Aggressive CAFE standards push vehicles costs skyward and according to Nick Bunkley, reporter for Automotive News, "Five years from now the government could decide that the standards are too difficult or costly and change the game again." 

What else makes cars cost more? When governments print money and devalue their own currency. That further inflates global crude oil prices because commodities investors look to crude as a hedge against the weak dollar. If the U.S. dollar loses value versus other global currencies Americans have to shell out more of them today to buy the same stuff they bought last year for less. Regretfully, that's what our federal government embraces in the notion of quantitative easing (QE3) and is hoping that the third time around brings the charm that evaded QE1 and 2.   

[Take the U.S. News Poll: Should the Federal Reserve Engage in a QE3?]

Strike three is the government's insistence on giving some companies piles of federally-guaranteed cash intended to help alternative energy companies make a go of it. Our government apparently believes that market-driven competition is a quaint artifact with no purpose. And that attitude is proving troublesome; it's even a topic for presidential debates.

This week A123 Systems Inc., a Waltham, Mass.-based company that makes lithium batteries for electric cars and received $249 million in federal grants from the U.S. Department of Energy in 2009, filed for bankruptcy after 14 consecutive quarterly losses. Such failures represent more debt that obligates taxpayers who never approved a single purchase. 

Is it really any wonder then that we can't afford to buy the terrific vehicles the government wants us to buy?

[See a collection of political cartoons on the economy.]

Forbes's Personal Finance reported earlier this year that the average price of a new car or light truck in April was $30,303, which represents a $1,200 increase over last year.

The sticker price for a 1960 Ford sedan was $2,257; the average new car price in 2009 was $26,300, or the equivalent of more than 22 weeks of pay for the median family income. And now we're looking at an average new car price that exceeds $30,000.

Is this what the government wants an automotive bailout to look like?

  • Read Daniel Kish: Oil and Gas Production is Falling Under Obama
  • Follow the U.S. News On Energy blog on Twitter.
  • Check out U.S. News Weekly: An insider's guide to politics and policy.