u.s. seeks $16m fine against u.s. car buyers.

So the NHTSA is looking to sock Toyota with a $16 million fine for keeping quiet about that little pedal problem on some of their vehicles.

Let’s see who paid attention in Economics 101:

Who gets to pay that fine in the end, when all the spreadsheets are tabulated and added up?

a.) Toyota’s stockholders

b.) Toyota’s executives

c.) Toyota’s customers

If you answered a.) or b.), you snoozed right through basic economics in college, or never cracked open a book on more complex economics issues than If You Give A Mouse A Cookie. If you answered c.), you may pat yourself on the back, because you are–of course–100% correct.  In the end, Toyota’s customers will pay that government fine, because Toyota will simply roll those sixteen mil into the cost of  your new Priuses (Prii?) and Tundras, Mr. and Mrs. Sixpack.

Corporations don’t pay taxes or fines; their customers do.  If a corporation gets socked with a tax or fine of X dollars, they will invariably come up with the scratch by either raising the aggregate price of their product by those X dollars, laying off enough people to save those X dollars, or employ a combination of those two measures.  There are no exceptions to this rule. At no point will the CEO of MegaCorp go “aw, shucks“, open his personal safe, and conjure up those X dollars from some nebulous stash of ill-gained profits.

Regulatory corporate fines and “windfall” taxes exist for one purpose only.  They exist so that a bunch of pencil-pushing bureaucrats can appear to be “doing something” against a perceived problem, and in the process justify the bureaucracy that lets them suck off the public teat without having to do any useful work.  In the end, it’s a tax on the consumer–it’s just so widely dispersed that most people don’t recognize it as such.  But whatever you want to call it, the end effect is the transference of money from Joe Sixpack’s wallet into a government account, with the corporation acting as the collection agent.


22 thoughts on “u.s. seeks $16m fine against u.s. car buyers.

  1. bluntobject says:

    Regulatory corporate fines and “windfall” taxes exist for one purpose only. They exist so that a bunch of pencil-pushing bureaucrats can appear to be “doing something” against a perceived problem, and in the process justify the bureaucracy that lets them suck off the public teat without having to do any useful work.

    I must respectfully disagree. These legislative devices also exist to exploit ignorant populist antipathy against teh ebil corpuh-ayshuns by signaling the bureaucrat-in-question’s willingness to “stand up to the man”.

  2. medic says:

    This will make Toyotas more expensive and reduce competition against the government car companies. Maybe then people will buy the coal fueled Chevy Volt.

  3. Justin Buist says:

    There are no exceptions to this rule.

    I would have to disagree, which is odd because I’m usually nodding my head in agreement whenever I read your stuff.

    It’s a perfectly valid argument when the government tries to tax or fine an entire segment of an industry (like health care) but in this case it’s targeted against a single manufacturer. Toyota still has to compete against Ford, Nissan, Hyundai, Audi, Volkswaggen, Mercedez-Benz, GM, Chrysler, etc. If they raise prices to cover the fine sales hurt and that hurts the bottom line. The invisible hand at work.

    So, they’ll have to find a way to operate at a lower profit margin (although the difference will be slight, I’d actually be in favor of a higher fine, oddly enough) until they’re able to pay off the fine. Ideally it’ll hurt the upper branches of management more than anybody else but it all depends on how Toyota handles the cost. Given that they’re Japanese owned I presume the executives will take it in the shorts and consider it a lesson learned. Heck, Toyoda might actually pay the fine out of his personal finances. I wouldn’t be the least bit surprised if he did.

    • bluntobject says:

      Nope, consumers still take it in the ass.

      Automobiles are not interchangeable. Toyota makes beige rounded-corners transportation appliances, and does so very well. (I know about the Supra — may it rest in peace — and the LF-A. Those are exceptions.) Many people don’t want a car, they want a transportation appliance — and Toyota is arguably the best source of those. Ford, Nissan, and &c. can’t produce a transportation appliance quite on par with one of Toyota’s.

      If the fine affects prices (and you’re right that it’s near to negligible at the big-car-company scale), those people will have to either pay more for what they want or settle for something they don’t want. If the fine doesn’t affect prices, people who want Toyota’s transportation appliances will have to put up with slower development of new models, or more-expensive or slower or otherwise worse warranty service. If, as you suspect, Toyoda-san pays the fine out of pocket, the people who would otherwise have gotten his money… don’t get it. Each way, consumers ultimately absorb that $16,000,000 fine.

      • Anna says:

        Honda makes a damn fine little beige driving appliance. One that is also far more expensive than its domestic counterparts (and holds its value much better as well).

        If Toyota has to pay the fine, it still must compete with Honda for its market share. Those of us without a gun at our heads to buy Toyota, as some of you seem to, will simply move to a better priced similar vehicle. Free market! Whoooo!

        • bluntobject says:

          I basically agree, but my parents wouldn’t. I distinctly remember (I’d just earned my driver’s license at the time) that my parents bought a Toyota instead of a Honda because the Honda was deemed “too sporty”. I don’t see how I would’ve hooned around any more in a Honda FWD slushbox than a Toyota FWD slushbox, but it made a difference to my folks.

          Would my parents have bought the Civic if the Tercel had been $100 more expensive? Maybe. Would they have been (slightly) worse off either way? Definitely. Would they have noticed? Probably not. But sum that $100 loss of value over every Canadian car buyer in 1996 and you come up with a significant amount of money.

        • Tam says:

          Yup, pretty much any given Honda is more driver-oriented than its Toyota counterpart.

          In fact, Toyota’s reputation as a purveyor of reliable-but-staid vehicles for unhip middle-aged folks is what caused them to launch their Scion division in the US.

    • Jay G. says:

      Your analogy fails in that Toyotas are already more expensive than their American counterparts. I looked at the Tundra when I was looking for a full size pick-up truck, and wound up getting a Dodge Ram because it was $10,000 less.

      Camrys are about the only model that are even close in price; even at that, for the price of a bone-stripped Camry (4 cyl., no radio, etc.) you can get a loaded Malibu or Taurus.

      • Zane says:

        Are they more expensive, or do you just pay more? I would bet that a large amount of that premium is because of government intervention/protectionism. But then maybe that model is made in the U.S. so who knows.

    • Jake says:

      Late to the party, I know, but…

      “If they raise prices to cover the fine sales hurt and that hurts the bottom line.”

      In this case, the fine looks to be negligible. According to Wikipedia Toyota’s 2009 sold about 2.4 million vehicles. Even assuming a 50% drop in sales, to pass the fine on to the customer they would only have to raise prices by less than $16 per vehicle. When you’re talking a car that’s already $20,000 or more, $16 is practically unnoticeable. With a more reasonable assumption of a 20% sales drop, it’s only $8.

      Who’s going to notice that?

  4. scotaku says:

    If You Give A Mouse A Cookie is a standard Econ 101 text, I thought – a treatise on the world of supply-side, laissez-faire economics. Unless I’m sadly misinformed, which is generally the case.

    But the Japanese executives will probably not take it in the shorts, they’ll just pass along the fine, as suggested by Marko. The days of such sacrifices are past, in the business world. Regardless, while the Toyota may cost more, for the time being that cost is a premium I’m willing to pay for the current state of Toyota’s durability and quality, a state which currently is not being matched by other makers. As soon as that state changes, of course…

  5. This reads as though the argument is: “Never punish a corporation, for all they do is pass the costs along.”

    Which would suggest that unless one is willing to either shut down a corporation or throw its executives in jail, there is nothing that can be done to punish a corporation for its mistakes and misdeeds.

    • Marko Kloos says:

      No, the argument is “Fines and windfall taxes aren’t actually a punishment for corporations, only for their customers.”

      • perlhaqr says:

        I’ve got basically the same question as Comrade Misfit, though: How does one effectively punish a corporation for misfeasance? (Not that I’m convinced Toyota is actually at fault here.)

        • Marko Kloos says:

          The potential customers punish the corporation, by not doing business with them. You don’t think the fallout from Toyota’s little PR misstep has caused them much greater fiscal damage than that $16M wergeld the .gov is going to extract?

        • Jake says:

          I’m not deterred from looking at Toyota as a choice just because people don’t know how to put a car in neutral.

      • planetcaveman says:

        There is this market mechanism called “substitution” that works itself into the equation. If you fine the hell out of company A it will have to pass it’s cost on to it’s customers but who says all those customers will be there?

        Having essentially run my own mortgage company for a few years I know very well how closing costs can affect a transaction, and when those costs get too high people will a) go to a competitor, or 2) just not go through with the transaction. I don’t see any reason why this wouldn’t be the case in any other industry as well.

        Depending on how all those additional costs affects the price and the market’s reaction to that you might very well see shareholders and the executives have to tighten their belts to deal with that increased competition.

    • bluntobject says:

      Which would suggest that unless one is willing to either shut down a corporation or throw its executives in jail, there is nothing that can be done to punish a corporation for its mistakes and misdeeds.

      “Corporations” don’t make mistakes or commit misdeeds. Individuals employed by corporations make mistakes and commit misdeeds, then try to hide behind their employers to escape punishment or mitigate it through collective guilt.

      If indeed the pedals on Toyotas were poorly designed, it makes no sense to take it out on the line worker who installs the trunk: find the designers and fine them.

      • planetcaveman says:

        The Corporation is the legally entity responsible for the production and distribution of the car, if the car is defective the responsibility of said corporation. Now, if the corporation wants to fire the designers that’s their choice.

  6. Lib R. Tarian says:

    Personally I do not trust government regulations/enforcement (created by either party). The marketplace will rule in the end. Nor am I currently convinced the problem is Toyota’s after seeing the age skewing in the trouble reports. As for the government “helping” me make the best decisions – right now I would buy a Toyota long before I would touch any UAW product.

    • You mean as in the same way that the marketplace “punished” General Electric for dumping tons of PCBs into the Hudson River? Or the way that the marketplace punished automobile companies back in the days when one could tell what the color du jour was from the color of the river downstream of the plant?

      The only time the marketplace ever punishes companies is when their products directly kill or injure their customers.

  7. Roberta X says:

    And nobody ever, ever died of industrial waste? Tsk, E. B., that’s weak.

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