Thank government for high car prices

Not long after my wife and I learned that we were expecting a child in 2024, it became exceedingly evident that I needed to upgrade my car to something more family-friendly. My nearly 20-year-old, bright red, five-speed Ford Mustang just wouldn’t cut it. Mustang back seats just aren’t made for convenient baby car-seat usage.

This wasn’t exactly a surprising revelation, but car prices since the last time I had purchased one were absolutely eye-opening. After weeks of research and test-drives, my wife and I ultimately settled on a new midsize SUV in 2024. Was it over-priced? Maybe, but prices have continued to surge since then.

The average cost of a new car is now over $50,000, but what’s behind this trend? While there are a host of factors, it may not surprise you to learn that the government plays a central role in this phenomenon—from provoking trade disputes, to perpetuating restrictive franchise laws, and to promoting lawsuit abuse for far too long.

In an effort to encourage people to buy American and encourage industrial reshoring, the White House has picked trade fights with foreign countries and imposed tariffs on a host of them. Unlike what the pro-tariff crowd says, these are little more than taxes levied at the border, which are then baked into the cost of goods, and passed onto consumers. This is especially true for new cars.

“No vehicle made at an assembly plant in the United States is 100% made here,” Kelley Blue Book noted. “Even Tesla sources its parts from other countries. This means that with tariffs, car prices will increase for American car buyers […] Shoppers can expect the tariffs to increase car prices by as much as $6,000 on vehicles priced under $40,000.”

That is painful, as is the impact of outdated franchise laws, like we have here in Georgia. Under state law, car manufacturers, like Ford, GM and so forth, are largely barred from selling direct-to-consumer. Nearly all new vehicles must be purchased from an independent, third-party dealership—essentially a middleman—and this curious policy is found in a number of states and dates to a bygone era.

“From the 1930–1950 period when there were few manufacturers and many dealers, and the dealers felt the terms of their relationship were one-sided: dealers were not guaranteed any inventory, manufacturers could terminate dealers without cause, and dealers could be forced to accept cars regardless of whether they could sell them,” according to the Cato Institute.  “Dealers also worried about manufacturers distributing cars directly and competing with franchised dealers.”

As a result of these concerns, states rushed to pass auto dealer franchise laws to the detriment of consumers. This adds to the cost of car ownership. A 2009 report from the U.S. Department of Justice estimated that this increased the price of car ownership by 8.6%. If that percentage has remained constant, then that adds over $4,000 to the average cost of a car today.

Then there is the legal system that has long burdened car manufacturers, and two Peach State cases epitomize this. “[Ford] was found liable in the deaths of two Georgia couples and ordered to pay $1.7 billion and $2.5 billion, respectively, to their families […] With these two verdicts, Ford held the dubious honor of having two of the three highest verdicts in the state,” the Atlanta Journal Constitution reported.

“Both cases alleged Ford sold more than 5 million Super Duty trucks with weak roofs between the vehicle model years 1999 and 2016. The plaintiffs alleged Ford knew the roofs in those trucks were prone to crushing occupants in rollover situations.” Georgia lawmakers have reformed the tort system, but preexisting cases like these still weigh heavily on auto makers.

Of course, not everything is the government’s fault. Safety features, new technologies, an array of sensors and computerized devices are costly and increase automobile price tags. Despite this, the government plays an outsized role in mounting auto costs, and this is leaving many Americans in a lurch.

“Increasingly stretched consumers are starting to draw the line on what they will pay for a new car, according to dealers, analysts and industry data,” the Wall Street Journal reports. “Car buyers are downsizing, buying used vehicles, taking on longer car loans and holding out for deals.”

These are smarter approaches. Nobody wants a car payment the size of a mortgage, but if Georgians want more affordable vehicles, then it takes the government adopting free-market policies, like reforming franchise laws and adopting more prudent means of securing favorable trade deals. In the absence of that, prices will likely continue to climb. Thankfully, my wife and I already upgraded before the market worsened.