Monday, 22 August 2011

The burns....

Via @LewStoddart, we find this gem:
From January, vehicles that do not comply with what is known as the Japan 05 standard will not be allowed into the country.

A Ministry of Transport report from July outlines the possible effects that will have on vehicle prices.

They include consumers potentially needing to spend $2000 - $5000 more to buy a newer imported vehicle that meets the standard. Imported Motor Vehicle Industry Association chief executive David Vinsen says cheaper vehicles will not be able to come in and vehicles which do come in will be newer and therefore more expensive.

Greater demand for those newer vehicles will force up the price, he says, and as a consequence the price of vehicles already in the country will go up.

The Ministry says people will not be priced out of the market if they buy privately or at auction, or from a dealer who stocks up with imports prior to January. [emphasis added]
 A few helpful reminders for the Ministry:

  • The price of all used cars on the market is affected by the supply of used cars coming in from Japan. This is true so long as, at least for some people, imported used vehicles are a substitute for domestically sourced used vehicles.
  • This is true both for vehicles bought privately and at auction.
  • This may, but is not necessarily, already being priced into current used car prices. If dealers can import cars more quickly in advance of the ban than used car buyers can deplete current supply, competition among dealers will keep current prices down to the cost of importing used vehicles from Japan; it's unlikely that NZ demand substantially affects the overall market for used Japanese vehicles. But if there are capacity constraints in shipping, prices could be running up. 
  • After the ban, even a dealer who has stocked up is likely to increase prices - the replacement cost of each vehicle on the lot has gone up, and we expect dealers to sell at a price that covers the replacement cost of the vehicles on the lot. Just like we don't expect gas stations to wait 'till their underground tanks run empty before changing prices in response to wholesale price movements.
  • I have no sense of whether Vinsen's estimate of the price effects are correct. He is undoubtedly correct about the direction of the change. I'm agnostic about magnitude.
  • It is "beat you over the head with a stick" stupid to try to reduce net fleet emissions by restricting imports of cars that are, on average, cleaner and newer than the existing fleet. Please consider this post as beating you over the head with a stick. 
  • If you care about net fleet emissions, put in emissions testing at the Warrant of Fitness check.


  1. 'or from a dealer who stocks up with imports prior to January.' - so the Ministry thinks that some dealers will stock up prior to Jan. Then what's the use of the new law?

    I'd like to see the Regulatory Impact Statement for this change. My bet is that it probably had to be 'reverse enginereed' by the wonks to fit 'policy' suggested from politicians. Wonder what the tsy said?

  2. My money's on dishonesty rather than stupidity.

  3. The political argument for observed policy is that poor people would blame the government for a warrant check depriving them of their car while blaming car dealers for price increases. The latter is politically cheaper. So they go for the politically efficient solution over the economically effective one.

  4. Enter this in the running for the stupidity contest:

  5. Ok, I think we can accept that the government decision is beat you over the head with a stick stupid and that all bloggers are mensa graduates with perfect information so answer me the following please:
    1) If MOT data shows no correlation between the volume of used vehicles being imported and the volume of vehicles being scrapped why does this change on 1 January?
    2) If stats NZ CPI reports that the average used car price shows no correlation with used vehicle import volumes why does this relationship change on 1 January?
    3)If Mr Vinsen has said that imports will halve and prices double virtually every year since 2005, and they have not, why is he right this time?
    4)If the new rule only requires imports of newer vehicles, how much more expensive does that make the vehicles already in the fleet?
    5)If the average age of the fleet is 13 years, how much younger does it get from importing yet more 12 year old vehicles?
    6)When did you start trusting used car sales men for advice on anything?

    You have three hours.

  6. I started writing this up as a comment, but I'm going to hoist it up to the front page. I think I'll still meet your three hour deadline though :>

  7. The view from our defensive MOT correspondent seems to be that because his Excel regression didn't show significance at 5%, and because car dealers are not trustworthy, then it follows that in market for second hand cars supply curves slope down, demand slopes up, and he gets a free pass to squeeze supply without consequence.

    Well, no. If the signs of the effects of a supply squeeze do accord with what we'd expect, and it isn't clear why we wouldn't, then this is a policy that achieves the twin benefits of making us all poorer and putting us in less-safe vehicles, while also harming the environment.

    I bet there is a hell of a policy paper behind all this.

  8. @Matt: another anonymous commenter at the update post says we export cars to Samoa. In that case, there's no reason to expect imports to correlate with scrap rates; instead, net imports ought be compared....