Should U.S. Government Impose a Ceiling on Used Car Prices?

August 9th, 2011

In 1944, the United States was in the midst of fighting a world war. Many manufacturing and production resources were devoted to the war effort, leaving other manufacturing to shut down completely. Even new car production was put on hold, with existing stock of autos sold only to those approved by the government.

That put a higher demand on used vehicles and, as you might expect, prices soared. In some cases prices doubled or even tripled from their pre-war levels.

Jumping to modern times, the 2011 state of auto sales is in a much different position. The industry still faces its problems, though, and the past few years have been especially troublesome for new-car inventory.  Our country has been at war, our economy is taking punches to the chin and auto manufacturers have dealt with everything from high national unemployment to natural disasters that crippled production and sales.

New car sales are down, used car sales (and prices) are up.

In 1944, the U.S. government’s Office of Price Administration solved the problem of soaring used car prices by imposing a ceiling on them. That’s a nearly unthinkable proposition today, but what if it happened?

First, a little more on the 1944 ceiling and how it worked.

The government’s price ceiling was determined by make, model and location of a car. For example, the price of a 1942 Ford V8 Deluxe sedan was capped at $1,065 if it was located in Oregon or Washington State. (Prices were slightly lower on the East Coast.) If it was sold with a warranty, the cap was $1,331. No private party or dealer could sell the vehicle at a higher price, regardless of demand.

Naturally, the NADA took issue with this practice, arguing that it would create a black market and destroy a dealer’s only remaining way to make money.

Consumers, on the other hand, appreciated the effort to make sure they were charged a fair price. Plenty of lawsuits ensued when sales prices exceeded the set ceilings.

The practice of capping the prices of used vehicles hasn’t been back since the OPA dissolved in 1946. I, however, wouldn’t mind seeing it return. Wouldn’t it be easy to shop for cars if you knew a 2008 Camry would cost no more than $17,000, regardless of the dealer you were shopping at?

Barbara Shunt, a 29-year-old woman living in Spokane, Wash., thinks so. “I would love to know that I was getting a fair price without the need to negotiate. It just makes sense.”

Former car salesman Scott Sherman doesn’t feel the same way. “The government shouldn’t determine how much a dealer makes on a car sale. Consumers are well educated these days and can use online tools to determine a fair price on a car. Dealers know this and aren’t out to overcharge customers. A price ceiling isn’t needed.”

Online tools such as CarGurus’ DealFinder, Kelley Blue Book and NADA Guides do remove much of the question of what a car is worth, but that doesn’t stop some dealers from charging significantly more, especially for in-demand models with limited new production.

And they will keep doing so as long as there are people willing to pay.

Should the U.S. government impose a ceiling on the prices of used cars?

-tgriffith

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  1. Jim Redd
    August 10th, 2011 at 11:28 | #1

    Oh wow.
    I can’t imagine the government putting a ceiling on car prices. It was a huge mistake in ’44 and would be again. Government shouldn’t control free market pricing… otherwise it’s not a free market.
    Heard about the “Patriotic Speed Limit” back then too? 35 mph to conserve fuel so there would be enough to the war.
    Times aren’t all that different now, the govt is just ‘slightly’ smarter about not controlling things it has no business controlling.

  2. Randy
    August 9th, 2011 at 17:43 | #2

    Here’s the bottom line from your article: “Barbara Shunt, a 29-year-old woman living in Spokane, Wash., thinks so. “I would love to know that I was getting a fair price without the need to negotiate. It just makes sense.”
    A lazy, stupid person who spends money without the slightest thought or responsibility wanting someone else to make sure they get a good deal.
    These are the professional victims who went out in throngs and bought houses they couldn’t afford and filled them up with stuff bought on credit, then dumped the entire country into a depression.
    I can’t say the person who came up with this idea has to be pretty dim to not be able to tell the difference between 1944 and now. Frankly, I have a right to sell my used car for whatever I can get for it.
    That’s the real problem we have now– Our government is always talking about a “free market economy” but spends all it’s time manipulating that market and failing to control the people who have access to the market. That’s the entire reason for our failing economy.

  3. panayoti
    August 9th, 2011 at 11:10 | #3

    Agree with Keith. What has the government ever done that turned out to be truly helpful for consumers?? See Cash for Clunkers, Fannie and Freddie, CMOs, Ethanol subsidies, Katrina relief, NAFTA, Iraq, Afghanistan, Part D, shovel ready jobs, etc.

  4. Keith
    August 9th, 2011 at 08:27 | #4

    Absolutely NOT! The whole basis of our economic system is supply and demand. If an item is in high demand but there are only a few examples available, the seller should have every right to ask however much he wants. An item is only worth what a buyer is willing to pay for it, so there is a natural ceiling set buy the consumer. Haggling is a good practice for both parties, especially on high ticket items. The seller sets a higher price than he expects to get for the item, the prospective purchaser can attempt to talk him down from that price and reach a happy medium in which the customer feels they got a deal with a lower price and the seller gets(usually) more than he expected for the item. This is good both for the economy(the seller makes a profit and can put that money back into the economy) and consumer attitude. Many forget that our economy is, for all intents and purposes, a barter system in which there is a standardized measure of value(currency). If we say that an item cannot sell for more than x amount, we are undermining the spirit of the system and the result will be a flat-line of the economic recovery which is currently in jeopardy as it is

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