AMAC Exclusive -By Luke Allen
I was recently in the market for a pickup truck after the one I’ve had for decades finally died after 330,000 reliable miles. While I’d heard that new and used car prices were up from just a year ago, to say I have sticker shock from my truck-buying experience would be a significant understatement. The price of a modestly appointed truck in 2021 is now very close to the price of my first house, with J.D. Power estimating the average cost for a new pickup at over $52,000. But it’s not just trucks. SUVs and passenger cars as well, new and used, are all far more expensive today than at any time in recent memory. Purchasing a new car in the year 2000 on average required 66% of a middle-class individual’s annual salary. In 2021, it requires 77%.
An internet search of just why that is will likely lead to the much-lamented “microchip shortage” as a simple reason for the price increases. The Biden administration has also sought to blame “supply chain problems” to avoid taking direct responsibility for the phenomenon. But those explanations alone don’t explain the increase in prices. In fact, the regulatory decisions of the Biden administration may be partially responsible for skyrocketing costs, and may only be making the problem worse.
I saw first-hand how regulatory policy could quickly drive up consumer costs during my time in the energy industry. As I wrote in an earlier piece for AMAC Newsline, ill-conceived energy policies have created electricity price spikes and supply shortages in recent years. As these policies were being enacted, I witnessed no pushback from utility CEO’s I knew and worked with. For them, increased operating costs were simply passed on to consumers. Everyone needed at least some energy, and utility companies simply upped their costs until they were making the same profits while also complying with new regulations. In fact, they may have even used the new regulations as an excuse to upcharge consumers even more, thus actually increasing their profits even as their operating costs went up.
It’s possible that a similar situation may be playing out in the auto industry. Casey Mulligan, Chief Economic Advisor to President Trump, writes in his book that fuel economy standards pushed by environmental groups require expensive component upgrades, materials and new technologies that drive up the costs of cars and trucks for consumers. Some of these regulations tie fuel economy to carbon emissions reduction, meaning consumers pay twice. Gasoline costs more at the pump due to carbon reduction regulations on refineries, and cars cost more because of expensive mandatory fuel efficiency upgrades.
However, while the direct relationship between more regulations and increased costs may be obvious to most consumers, many career regulators don’t see it that way. Take, for example, David Friedman, Director of Cars and Product Policy and Analysis at Consumers Union (the publishers of Consumer Reports) who was formerly Deputy and Acting Administrator of the National Highway Traffic Safety Administration, and before that was Acting Assistant Secretary for the Office of Energy Efficiency and Renewable Energy at the U.S. Department of Energy, both under President Obama. Under Friedman’s leadership, Consumers Union released a report that said rolling back expensive fuel regulations would cost consumers money.
How does Friedman arrive at such a seemingly backwards conclusion? Because in his view, the view of a career regulator, Americans need the government to intervene to save them money by preventing them from burning too much gasoline. Think about that for a moment. In no way does the concept occur to Friedman that if the consumer wants to save money on fuel they might simply drive fewer discretionary miles (like making a grocery list and driving once to the store instead of making several separate trips to purchase a handful of items each time), or carpool, or use mass transit. No, in Friedman’s bureaucratic world, government must step in and force auto manufacturers to spend hundreds of millions of dollars to increase fuel economy of cars lest consumers spend all their budget on gas because they are too stupid to control themselves.
The Trump administration took a different approach, cutting regulations in order to lower costs and allow Americans to make decisions for themselves – and saving Americans $50 billion dollars in the process. Trump targeted stringent fuel economy regulations from the Obama administration in an effort to lower new car prices. But did the automobile manufacturer’s lobbyists resist such a cut? One would assume that auto manufacturers would welcome deregulation as a way to save car buyers money and perhaps increase the number of cars sold. Yet in his book, Mulligan states that the big car companies may have had an ulterior motive. In fact, they may have overcharged consumers for fuel economy compliance from the beginning – the very same situation seen in the utilities sector.
Biden is now making every effort to return to this failed system of perverse incentives and federal government overreach. While claiming that he will make the rich “pay their fair share,” the wealthy individuals with vested interests in car manufacturers may be making out better than ever – and it’s ordinary Americans who are paying the price.
Luke Allen, now a freelance writer, spent 30 years in the energy industry and was an energy policy advisor to two administrations.
