To the Scrap Heap: Manitoba’s insurance monopoly destroys cheap cars and hurts the poor

Commentary, Crown Corporations, Environment, Peter Shawn Taylor (historic), Poverty, Regulation, Transportation, Uncategorized

 

The damage done by government-controlled car insurance can go far beyond a lack of choice for drivers.
 
Manitoba Public Insurance, the provincial auto insurance monopoly, has embarked on a program to rid the province of cheap, serviceable vehicles in the belief cars built prior to 1995 are bad for the environment. The unintended consequences of this misguided policy, however, will be longer stints on welfare for poor Manitobans, higher insurance premiums for all and, ultimately, more environmental damage.
 
When it comes to fighting poverty, access to a car is a very powerful weapon. For those on welfare, driving is the best means to find and keep a job. For low-income workers, cars make many better jobs more accessible. In fact, a car can be as significant as a high school education in improving employment outcomes.
 
Research shows that car owners tend to earn more per hour and work more hours per week than non-car owners. And this connection between cars and jobs is a causal link. It’s not merely the case that someone with a job can afford to buy a car; rather studies of the unemployed clearly show that someone with a car is more likely to find and keep a job than someone without. And for single parents, access to a car makes trips to daycare, work and shopping manageable in ways that public transit cannot.
 
The vast array of benefits associated with access to an inexpensive car has caught the attention of many U.S. charities that make donated cars available to screened welfare recipients.
 
No such luck in Manitoba. This October, the provincial government announced a variety of new rules aimed at eliminating cheap cars. Among them, MPI will no longer fix and/or resell any car built prior to 1995 that is written off for insurance purposes. Regardless of condition these cars must be sold for scrap. It is also illegal to import into Manitoba any car built prior to 1995, unless a bureaucrat decides it’s a “classic car.”
 
With a monopoly on basic auto insurance in the province, government-controlled MPI has a massive influence over the used car business. Its used car auction typically sells several hundred cars weekly. This new rule will significantly reduce the pool of inexpensive cars available to low-income Manitobans. And this will inevitably affect welfare and unemployment rates.
 
The ostensible reason for scrapping older cars is to reduce greenhouse gas emissions in the province. But the report from the Manitoba Vehicle Standards Advisory Board provides no reason why 1995 is significant in this regard. It appears to be a date plucked from thin air. In fact, the average fuel efficiency of vehicles in 1987 was better than in 2004, as the report points out. It’s also worth noting that the advisory board includes prominent representation from new car dealers, who clearly benefit from any decision to reduce the number of used cars available in the province.
 
But beyond the impact this new rule will have in preventing low-income Manitobans from accessing low-cost transportation, any policy that destroys perfectly serviceable cars will not produce any net benefit to the environment. Rather it’s a shameful waste of resources.
 
The energy required to build a car – what is called embodied energy – is a significant environmental factor, regardless of the efficiency of new cars. By some measures, as much as 30 percent of the entire lifetime energy use of a car is incurred in its manufacture and original sale. The longer a car can be kept on the road, the more this embodied energy can be amortized. Many environmental groups concede this point.
 
MPI’s policy, forced on it by the provincial government, also represents a significant abuse of a monopoly position to make a political statement. Scrapping working cars to promote a wrong-headed environmental policy reduces the insurer’s potential income from the auction process.
 
Some cars scrapped by MPI simply have a broken window, hail damage or a missing headlight. After quick repairs and a mandatory safety inspection, such cars would be ideally suited to unemployed Manitobans eager to find a job. Selling them for scrap represents a substantial loss of revenue for MPI and will inevitably lead to higher premiums for everyone. No private-sector insurer would act in such a manner.
 
In following the government’s flawed and arbitrary environmental policy, Manitoba’s monopoly public insurer is preventing those in poverty from accessing cheap cars, wasting valuable resources and burdening all car drivers with excessive premiums. A little competition would go a long way to solving these problems.