What Can We Afford?
There was a piece in the NYT recently about the death of affordable cars in America. It’s written by a Brookings Institution economist, and the conclusion is basically that America should allow Chinese cars into the United States under certain conditions because they’re cheaper and better than the cars that are currently being offered in America. I agree with that for the most part, though we differ on some of the details—and, I assume, our motivations.
We also differ in our understanding of some of the popular explanations for what has driven the cost of cars up; but surprisingly, he gets a lot of it right. CAFE really was a way to protect American automakers from foreign competition and advantage makers of big trucks and SUVs. Repairs really are more expensive, used cars are also more expensive. Chinese cars could, depending very heavily on a number of unknowns, be a cheaper alternative for cash-strapped Americans.
Most surprisingly, he even spends a couple of paragraphs explaining the primary reason why automakers don’t make affordable cars anymore. Here’s of the paragraphs:
“What happened? How did a basic necessity of American life become a luxury good? We have to start with a transformation of the economy itself beginning in the late 1970s. While hourly compensation for the typical worker remained nearly stagnant, massive stock market bull runs and rising home equity have enriched the most affluent households. Today, there are so many wealthy people who can afford luxury cars that it simply isn’t that profitable for companies to produce cars for the bottom 40 percent of Americans by income.”
Haha, that’s crazy, right? The bottom half of Americans are too broke to constitute a market for new cars. In the era before regulatory requirements, it was possible to sell cheap cars at high enough volume that a modest per-unit margin wouldn’t doom the business case. By the early aughts that was less true, but little cars were sold for CAFE purposes and to theoretically provide a way into a brand for younger consumers.
It wasn’t necessarily worth the trouble to build a line of small, affordable cars for sale in the US, but automakers found reasons to do it, and for the most part they don’t anymore. Asian and European automakers continue to sell small cars here but even the cheapest and smallest cars available on the US market have grown in size and price, along with everything else we buy.
One of the big arguments for globalization was that consumer goods like TVs would be cheaper as Americans took advantage of cheap labor in other parts of the world. TVs did get cheaper, along with a lot of other non-essential treats.
Economic productivity is up a ton in the United States, but the fact is that even relatively well-paid wage earners have a lot less buying power than they should. It’s one thing to make TVs cheaper, and quite another to make food, housing and medical care cheaper. The things we need or are obligated to buy always get more expensive.
America does not work if Americans don’t have transportation. For the most part, the economy depends on workers being able to drive to their workplaces. Just like a million other things that are essential to a functioning America, the burden of paying for transportation is entirely on you. Bringing good and inexpensive Chinese cars to the US could help ease that burden.
American car companies can lobby against Chinese cars all they want, but Chinese car companies understand that opening the US market is as easy as greasing the right palms, building a factory in the right district, possibly with the right contractors. The President has said exactly that. Elissa Slotkin can sit in a room jam-packed with Chinese-made technology and warn us against the security risks posed by Chinese cars, but they will not be kept out of America. There’s no way.
I think American, Japanese and Korean car companies are right to worry that Chinese competition would take market share, though if we’re talking about Chinese EVs, they’ll face the same charging/infrastructure hurdles that kneecapped the first push for EV adoption in the US. That said, China probably is in a position to build out charging infrastructure here if that’s what it takes. They could also show up with hybrids or conventional ICE cars.
It’s a strange time. The car companies that do business in America tend to stay politically neutral and financially support both parties more or less equally, though individual employees are of course free to choose their side. The industry line has been that the preference is stability, not one set of policies or another. But those companies also tend to lobby for a more relaxed regulatory environment and reduced tax burdens. If we’re to think of corporations as organisms that exist solely or almost solely to generate shareholder value–which is correct–then, both of these preferences make sense. That’s what we would expect them to do.
But over time, it does create a set of contradictions. Eventually, all the deregulation does end up making it harder for regular people to buy things like cars. A regulatory regime that swings wildly from preference to preference, even if those swings are sometimes favorable, does make it hard to plan for the future. Forget the EV era, just in the last year we’ve seen the elimination of a number of EV friendly policies, wild deregulation, and a flailing tariff policy. And just when deregulation brought back thirsty V8s, a suicidal decision to go to war with Iran and spike oil prices in a way that we’re just starting to feel as of this writing.
Even if you agree with any or all of these policies, you have to admit that they’d be hard to plan for. It’s also expensive and, in the current situation, perilous. Policymakers have pushed manufacturers into a situation where they’re really only making products for the American market. If that market shrinks, they don’t have Europe and Asia to fall back on in the near tearm. (I won’t digress, but the stability of uncontested political will and discipline that doesn’t shift based on quarterly profit reports are the main advantages China’s carmakers have in all of this.)
Some parts of the American system have been relatively stable over the last few tumultuous years: companies are free to probe the limits of how much they can charge for food, housing and medical care, tech companies are woefully underregulated and financial crime and corruption are so widespread that it feels pointless to even acknowledge it. These are all policy choices. But, if human workers continue to lose jobs to AI fantasy, factories are offshored, larger and larger shares of money are piled into the Silicon Valley furnace, and households find themselves less-able to afford basic necessities, then the market for new cars will probably shrink. If the costs of running a hospitality business continue to rise while people increasingly cut back on expenses like food and travel, if healthcare costs continue to rise … you get it. It’s a gloomy picture for car makers trying to fend off competition in the form of very good and very cheap Chinese cars, that again, cannot really be kept out of America.
This is to say nothing of the looming climate catastrophe and its attendant sub-catastrophes. Maybe I’m being a doomer; maybe it’ll be fine.
Am I suggesting that car companies should reconsider their policy priorities or reorient themselves toward policies that put more Americans in a position to buy new cars? I am not, and I would not presume to tell car companies how to lobby or do business. I’m sure the people in charge spend time thinking about these forces and are making plans to adjust their businesses to accommodate them in the long term. Again, car companies are going to pursue whatever policies stand to generate the best quarterly results. That’s their job. It is not the job of car companies to ensure that there’s a middle class in America.
Even so, it’s a strange thing to have American industry threatened by the long-term consequences of the very policies that have benefitted them over the last several decades. Can the car business in America survive a situation where a smaller and smaller subset of Americans can afford a car? Can it survive in the face of rapidly degrading power infrastructure? Can it survive whipsaw regulatory shifts and supply chain disruptions? Can it survive when a competitor brings great cars to market at prices that are impossible to match? I guess we’ll see.
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