Saturday, June 13, 2009

"Cash for Clunkers"? Pfft... get a load of Japanese shaken

Steven Levitt over at freakonomics brought up the US "Cash for Clunkers" program again, which just passed the US House of Representatives. Before details were released, he was originally speculating that they would make it so cars over a certain age would be available for a trade-in of $3,000-4,000 or so in an effort to get older, dirtier cars off the roads and replace them with more fuel-efficient models. According to the article, the final details of the plan are thus:
Under the plan, owners of cars and trucks that get less than 18 m.p.g. could get a voucher of $3,500 to $4,500 for a new vehicle, depending on the mileage of the new model.

The plan does have several hurdles that will keep some potential buyers on the sidelines. The clunker being traded in will be crushed or recycled, meaning it will have no trade-in value beyond the voucher. Of the 25 million vehicles estimated to qualify for the voucher, most will be trucks: even 15 years ago, only five models of midsize sedans managed just 18 m.p.g.

To ensure the vehicles being crushed are actually coming off the road rather than cinder blocks, the trade-ins have to have been registered and insured for at least the past year.
So they settled on an mpg rating as opposed to a year rating to focus on removing foreign oil influence as opposed to lowering emissions directly. If, however, they did decide to try for lowering emissions, they could look no further than Japan for a plan as they have a great plan for doing so. It's expensive for consumers, but that's part of the point - giving negative incentives to owning cars so people will look into the alternatives and not be so wasteful. (This would of course need to be supplimented with such alternatives to be effective, but these could be made if the people wanted it badly enough.)

First off, most know that gas is more expensive in Japan than it is in the US, but then that's true for pretty much the rest of 1st-world countries as well. I don't have a car anymore so don't really look too closely, but last time I noticed regular gas was around 120JPY/liter ($4.62/gallon at today's exchange rates) out here - it was pushing on 200JPY/liter (~$7.50/gallon) back when Americans were complaining about $4-5/gallon.

But gas isn't the real expense of having a car out here, it's only a very small part. Just to get a license in Japan you're forced to go spend about 300,000JPY on driving school lessons (note: transfer of foreign license is exempt of this). And if you buy your own car you have to have proof of a place to park it, which unless you live way out in the country you're definitely going to have to pay for and could run you several 10,000s of yen a month, especially if you're around Tokyo. Also, one of the better parts of Japan's temporary economic stimulus package has made it so that you can use the highways to get anywhere for only 1000JPY, but all Japanese highways are tolled. Just to give you an idea of the normal rates, it usually costs give or take 10,000JPY to go from Tokyo to Sendai one-way, which will take you 365km and roughly 5 hours. A ticket on the shinkansen meanwhile will cost you about the same and get there in 2-2.5 hours, less than half the time.

Then there's the major cost in getting a car out here - the shaken system ("shah-ken"), which is basically a system requiring you to get your car inspected every 1-3 years depending on age and type of the vehicle. New passenger vehicles don't need to be inspected for 3 years, then after that they need inspection every 2 years. The inspection itself will cost you anywhere between 50,000~100,000 with any repairs deemed necessary on top of that, including scheduled maintenance items like tires, timing belts, clutches, etc. Most anywhere you take your car they will make you replace something, so normal costs to expect could be anywhere from the 60~80K JPY range for kei-cars to more like 100~200K for higher end cars (my '00 WRX cost about 150K).

This is why used vehicles depreciate so fast in Japan, and also why you don't see all that many cars that are more than 10-15 years old... not too many people are willing to spend more than the car's worth every 2 years just to keep it on the road, and for a lot of cars the shaken cost exceeds selling value after about 10-15 years or so. Older cars that aren't wanted are either exported to poorer countries that can still use them or crushed. This makes it almost impossible to find classic Japanese cars, and puts the price of those you do find prohibitively expensive for most. On the flip side, this means that most cars in Japan, including the older ones, are normally kept in spectacular running order - no clunkers. Also, because of the gas prices and highway costs, along with the craptacular traffic in urban centers like Tokyo, most people consider the spectacular train system a great alternative for long trips and commutes, opting out of using the car for long distances and keeping the odometer reading relatively low as well.

Now bringing us full circle, the consequence of this is cars in better shape due to regular and expensive inspections, meaning better gas mileage and lower emissions. Older cars are just as expensive to hold onto as newer ones, so newer cars with even lower emissions are the norm. As a corollary, newer cars mean that people have to buy cars more often, further feeding the economy (normally). Also due to the higher gas prices and highway costs, people are more likely to buy more efficient cars in the first place... if they decide to buy one at all. I'm sure if the American system took this as its model, well first off you'd have a bunch of pissed off Americans, but you'd certainly cut emissions and raise fuel efficiency.

In closing, this is why I do not own a car in Japan. The end.

3 comments:

Alex said...

The shaken system is a scam. I read through one guy's experience where he fine tuned his car to perfection before submitting it for a shaken inspection, and they still charged him an arm and a leg as they started to make up problems.

The real reason shaken exists is to have consumers constantly cycling through cars, creating a higher demand for new cars produced by Japanese automakers. (If you notice, there are very few foreign cars on the road in Japan)

If you took away shaken, Japanese automakers would be hit even harder than they have been at this point.

darg said...

@ Alex: yep, I mentioned that shops will pretty much always find something for you to fix, but if you think about it that's pretty universal. It held just as true back home when I would get used cars inspected before I registered them at home, it's just in my state they only had 1 chance to inspect it - when I bought the car.

And of course they want people to buy new domestic vehicles - isn't that what every country that makes cars wants? I know those trying to rebuild the US auto industry want people to buy American.

Also if you'll notice Japanese are extremely brand loyal, meaning they overwhelmingly buy Japanese for just about everything across markets with rare exception (Apple, BMW, etc.) and don't really go for no-name or lower name goods.

And remember: in Japan if it's expensive it must be better, and if everyone wants it then I have to have one too.

Ju said...

while this was suppose to be for consumers, it is not. scams abound, buyers beware. check this : http://butasforme.com/2009/07/17/cash-for-clunkers-the-ultimate-bait-and-switch-marketing-tool/