Government mandates, preferences and subsidies don’t work. Here’s another example.
When gas prices hit record levels over the summer, companies were furiously pumping out oil to meet surging global demand. As the economy took a turn for the worse and demand slowed, there was a noticeable lag as companies continued to supply oil at a high rate, bringing the price down even further.
A similar phenomenon is happening with hybrid car sales. Wes Brown, a partner at Los Angeles-based market research firm Iceology, told the Los Angeles Times:
When gas prices came down, the priority of buying a hybrid fell off quite quickly. Yet even as consumer interest declined, the manufacturers have continued to pump them out.”
The recession caused vehicle sales to fall across the board and the lag in production to reflect consumer demand certainly is part of the story. But there’s another story to tell for the strong supply despite reduced demand. Government mandates.
The Ford and Honda hybrids due out this month are among dozens planned for the coming years as automakers try to meet new fuel-efficiency standards and please politicians overseeing the industry’s multibillion-dollar bailout.
Today there are about 80 days’ worth on hand, and dealers are working much harder — even with the help of $500 factory rebates — to move the egg-shaped gas-savers off lots from Santa Monica to Miami.
This month, Honda is offering $2,000 in cash, financing and leasing incentives to buyers of the formerly sold-out Civic hybrid, while a dealer in northern Michigan is dangling $6,000 cash back to those willing to buy a hulking Chevy Tahoe hybrid.
Yet automakers believe they have little choice but to make more hybrids. Though car buyers are losing interest, politicians are pushing them as key to reducing U.S. dependence on foreign oil and limiting the global-warming gases that cars emit into the atmosphere.”
This goes to show that the market has a hard enough time meeting consumer demand with adequate supply, hence one of the primary reasons for inventory. It also goes to show that when the government gets involved to make decisions for the market, whether it be through subsidies, mandates or any other preferential treatment, the situation only becomes worse for the producer and consumer.