What Standards Should You Use to Buy a Car in an Era of Low Oil Prices?

In an era of low oil prices, large cars sell well. That is because even if people buy heavy, large vehicles, the burden of fuel costs is not that great. As low oil prices persist, heavier and larger cars are once again gaining popularity over lighter and smaller ones. In the U.S. market, small trucks are even outselling passenger cars.

In the past, during the era of high oil prices, small cars were popular. Lightweight cars that rarely broke down and had low maintenance costs dominated the market. That is because among the criteria for choosing a car, the most important is maintenance cost. Of course, maintenance cost is determined mainly by oil prices. In other words, changes in oil prices—whether they rise or fall—are the fundamental factor that changes demand for automobiles.

There is another variable as well: changes in income levels. When individuals earn more, they can buy more expensive cars. High-priced cars sell particularly well when the economy is booming. In this regard, there are several options. Depending on personal taste, RVs, small trucks, sports cars, eco-friendly cars, or cars with a luxury image can all serve as alternatives. These are sometimes described as luxury goods. Essentially, people choose cars in various ways according to their financial means and their desire to purchase. In that way, individuals buy the cars they want, and the market moves in a predictable direction.

But there is a variable that disrupts the market. The government tries to influence individuals’ preference systems. Citing political reasons, it sometimes uses regulations and taxes to steer people toward using certain types of cars.

The issue of green energy or green industry is a representative example. The government once encouraged the production and purchase of diesel cars on the grounds that they were environmentally friendly. Even though diesel already enjoyed excessive incentives because taxes were lower than on gasoline, the government still supported diesel cars as “green.” But the problems with diesel cars soon became clear.

Diesel cars are the largest source of fine dust emissions in large cities. Their fine dust emissions are 9.7 times higher than those of gasoline cars in the same class. Moreover, diesel emissions are highly hazardous and serious enough to threaten public health. As of 2016, diesel cars accounted for 99% of ultrafine particulate matter emissions and 92% of nitrogen oxide emissions among all air pollutants emitted by automobiles. Considering these facts, diesel cars can rightly be described as vehicles that should be phased out.

Nevertheless, as of 2018, the price of diesel was still very low—only 88% of the price of gasoline. The reason is that taxes are imposed at a lower rate than on gasoline. This becomes the decisive factor leading people to buy diesel cars. The government’s mistaken incentive policy is polluting the environment. What the government should do is first correct policies like this that run counter to environmental protection.

There is a strong risk that the government’s absurd policy failure will occur again in the field of eco-friendly vehicles. It is offering various benefits and tax support—and even purchase subsidies—to sectors that promote an eco-friendly image, including electric vehicles. People naturally seek out and consume things they believe are better for hygiene and the environment. Even so, government interference under the banner of “green” not only distorts the market but is also highly likely to produce anti-environmental results. Since no one can know the future and determine with certainty what the better choice will be, it is undesirable for the government to act as if it knows what the future outcome will be.

The belief that the government knows better and can make better choices is arrogance. Respecting consumers’ choices is the essence of economic democratization. We must bear in mind that the more the government tries to substitute its choices for those of consumers, the more it may waste tax revenue, undermine corporate competitiveness, and even worsen the environment.

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Original title: 저유가 시대에 어떤 기준으로 자동차를 살까?

Author: Sung-no Choi

Date: 2020-06-26

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=20&idx=22882