One of the hottest topics on the streets right now is the debate over used cars. New car dealers are recommending that the government impose some basic regulations on the importation of used vehicles and the used car dealers are pushing back on any regulations that will damage their businesses and the freedom of choice currently enjoyed by the consumers. There is a lot of misinformation being circulated, and we thought that we would try to lift the conversation out of the muck of self-interest and put some of the arguments to our readers so that they are better informed.
The first thing that we all need to agree on is the need for some type of regulation. The depth of the regulations need to be established, but we certainly cannot survive with a free-for-all situation. Some will argue that a “free-for-all” is the definition of a free market, and while that may be technically correct, we do not live in anarchy. We live on a small island that has to find a practical balance between economics, the environment and other issues. To be fair though, no one is painting this as solely an economics versus environmental battle, but they are the leading issues raised by both parties.
We have an appreciation for the arguments on both sides, and that makes forming an opinion very difficult; not impossible, but difficult. We are supporters of free markets and we do not support any overreach by governments and regulators to infringe on the freedom of our people to make choices. That said, we also understand that practicality and the economics of small markets often require some regulations to be established to save us from ourselves. But before we get into that, let’s look at clearing up some misperceptions and acknowledge some realities.
First, a car dealership is a business and it is there to make money. Whether it is a new car dealership or used car dealership, the owners want to make a profit. Next, there is a burden on new car dealerships that typically do not apply to used car dealerships – think showroom specifications, parts inventory, qualified service personnel, etc. This equates to higher overheads and will translate into the need for higher gross margins. There is no doubt that new car dealerships offer value to their customers over the life of the vehicle that one may not get with a used car dealer. It is for this reason that many states in the U.S.A. will not allow car manufacturers to sell directly to consumers. Tesla can tell you a thing or two about that situation. And that gets us back to the issue of choice and the old adage, ‘you get what you pay for.’
While new cars and the dealerships have their benefits, the used cars do as well. Used car dealers can typically offer greater affordability and in some cases, opportunity (to own a vehicle). They may not offer warranty, parts or service, but the price point may be the difference between driving and taking the bus.
In the current environment, the used car dealers and private buyers import the lion’s share of vehicles into the country. This has obviously hurt the new car dealers, especially in the trade-in/used car segment, and they believe that there ought to be regulations to level the playing field. In their proposal to Cabinet, they have proposed a staggered environmental levy based on the age of the vehicle being imported. Basically, the older the car, the more the environmental levy. In most cases, that means that the more affordable a car gets for the budget minded buyer, the more they will pay to import the car. The reason presented is that the older the car, the shorter its life and the quicker it reaches the Cook’s Landfill – basically, older cars have a larger negative impact on the environment than new cars.
To be clear, there has been no suggestion of age limits or importation limits on the number of vehicles imported. The argument wandered into those areas because people have extrapolated the possible ramifications of the increased environmental levy. But again, there have been no limits proposed by the new car dealers.
It is hard to formulate an opinion one way or another. The free market part of our brains says to let things continue as they are, while the environmentalist in us says to find some way to regulate the industry for our collective benefit in the long run. Then there is the thought pattern that asks: since other countries have regulated the industry, so should we? Without diving into the issues and making a full analysis of the economic, environmental and other impacts, it would be impossible to make a pronouncement on the issue.
That said, we do not think that a solution cannot be found. The used car dealers have indicated that they are not totally averse to some regulations and there seems to be some flexibility from the new car dealers on the topic, so let’s get everyone in a room and hash out a workable plan that maintains choice but acknowledges that something needs to be done. We have been told that this exercise was attempted and concessions were made by both sides, so what happened to that joint resolution/proposal? We should not forget that government has a say as well because the administration has certain economic strategies that come into play. Governmental concerns need to be considered by the dealers.
In the end, people want choice, and we are confident that the big brains of the industry can figure this out. There is enough data and precedence available to make informed decisions without the need to resort to any public squabbling.
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