Lower the barriers to raise car ownership

New Zealand has the third highest car ownership per person in the world, the economist informs us. That’s amazing, especially as tiny Luxembourg tops the list. It’s especially amazing when you are standing at a rental car counter during summer and unable to get a car.

Luxembourg is only 80 x 30 kms, and while boasting the highest GDP per capita, the owners of those cars often live next door in Germany, France or Belgium – saving taxes. It’s essentially a statistical anomaly, so let’s leave it aside. 

Number two is Iceland, completely isolated like New Zealand, and with a small population. Perhaps there is something to living in rocky countries that are under-populated and geographically isolated?

Well no – next in the list is Italy, about the same size as New Zealand and with 54 million or so more people, but a similar topography.

So why?

• Commenters said that there is an alternative source of statistics, but that doesn’t explain why NZ is high on this list
• Commenters also said that for the USA SUVs are classified as “trucks” and not “cars” for the USA. Adding them back raises the USA up to first place. High GDP and low vehicle prices gets them there. 
• New Zealand has relatively poor infrastructure and is very rural and hilly, and so we more often need cars for commuting or for shopping than higher density and more urban places. Auckland is spread out, Wellington is all hills and so it is tough to walk or cycle. Christchurch gets a pass here.
• But most of all it has to be the lack of trade barriers.

New Zealand stands almost alone in that regard, and it means we avoid the equivalent of a large import tax that everyone else pays. 

In NZ, once the vehicle is inspected by customs and agricultural officials you drive the vehicle to a nearby testing station, get a warrant of fitness, pay your registration and GST and go. It’s simple, I’ve done it and it took about 20-30 minutes.

If you want to import a vehicle into, say, the USA or EU, then you need to get it approved by the authorities as being safe, conforming to standards and so forth. You also need to pay a confusing array of taxes, get it tested, registered for your jurisdiction and so on. I’ve tried to do this to the USA, and utterly failed at any price.

These rules and regulations are present in every major market, and yet seem to be different in each. As a result the cost of compliance is very high, and so imported cars are at a serious disadvantage to domestically produced cars.

And that’s the point – protection of a domestic car industry. Sadly that “protection” seems to have a negative impact – if higher car ownership numbers results from freer markets, then wouldn’t it be better for your domestic producers of all products for you to free your own market?  It’s a bit simplistic, but basic economics tells us that the more efficient the market is the better the result. It’s often contrary to political concerns, although those jobs in Detroit may have been kept if the US car companies had been properly exposed to the rest of the world’s cars earlier.

Iceland, Luxembourg and New Zealand have no domestic industry to protect, and Iceland and Luxembourg are both part of the EFTA – and so you can easily import or register  a car from anywhere else in the European free trade area. Meanwhile it is expensive to export your car from New Zealand (no-one will take them) and from Iceland (high used car sales taxes). 

So what would the impact be of global standardization of car certification? At the very least allowing people to import small volumes of cars easily would help identify gaps in the market. Better would be bilateral agreements between markets – accepting that the regulations in each jurisdiction are acceptable for the other and increasing sales of each other’s cars in each country. A Nobel prize was won by pointing this out – the EU cars are in demand in the USA and vice versa. 

Those USA SUVs are a nice case study. They were wildly popular because they were and still  are cheap, and they are cheap because they are regulated and taxed as light trucks and not cars. This does mean poorer safety standards, which is very bad, and yet people flocked to buy them as they perceived more car for the dollar.

And therein lies the rub. The health and safety standards in Europe differ from the safety standards in the USA and, in then there is California. Global manufacturers can adapt to each country, and create vehicles that conform to more than one standard. However a great start would be a single  standard between the EU, USA, Japan and Korea. Going forward that standard could be a rating (e.g. A,B,C on safety, 1,2,3 on environment), and given jurisdictions could select which rating they require or compliance.