 (EM621) 
December 22, 2010
In Brief:
The Road to RuinManitoba Public Insurance monopoly is hurting the poor
Manitoba Public Insurance has a thing about old cars. It wants to destroy them.
MPI, the provincially controlled auto insurance monopoly, is trying to rid the province of cheap, serviceable vehicles in the belief cars built prior to 1995 are bad for the environment. The unforeseen consequences of such a 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. And cars make life much simpler for single parents. A car can be as significant as a high school education to improving outcomes.
Research by urban planner Evelyn Blumenberg of the University of California at Los Angeles shows that inner-city residents of Los Angeles can reach up to 59 times more job opportunities by car than is possible using the bus or subway, due to the inflexibility of public transit. This problem is even more acute in small centres with less-developed (or non-existent) transit systems. Access to more job openings means a better chance of finding the right job and getting off welfare.
Further, car owners tend to earn more per hour and work more hours per week than non-car owners. It is important to note that this connection between cars and jobs is a causal link. It’s not merely the fact that someone with a job can afford to buy a car; rather, studies of unemployed cohorts 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. Programs such as the Good News Garage in Vermont and Working Wheels in Seattle make donated cars available to screened welfare recipients. Working Wheels reports a 32% increase in hours worked and a 10% increase in wages among those receiving a car. Even without such charitable activity, a large supply of safe, cheap cars is a boon to anyone with a low income.
No such luck in Manitoba. This October, the provincial government announced a variety of new rules aimed at eliminating cheap cars. MPI will no longer fix and/or resell any car built prior to 1995. All cars more than 15 years old that have been written off by MPI through insurance claims must now be sold for scrap, regardless of their condition. It is also illegal to import into Manitoba any car built prior to 1995, unless it is a “classic car.” For the record, a 1986 Firebird is not considered 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 that all cars in its possession built before 1995 cannot be registered for road use 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 the 1995 model year is significant in this regard. It appears to be a date plucked from thin air. In fact, the report notes the average fuel efficiency of vehicles in 1987 was actually better than in 2004. 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% 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. Even environmental groups concede this point. “The best thing you can do for the environment is to drive your old vehicle into the ground, because the life-cycle costs are so high. That’s the logic of sustainability,” says Margaret Mahan, executive director of Better Environmentally Sound Transportation, a pro-bicycle lobby group based in Vancouver. MPI is deliberately ignoring such logic.
MPI’s policy also represents a significant abuse of its monopoly position to make a political statement. By choosing to scrap working cars to promote a questionable environmental policy, the insurer is reducing its potential income from the auction process. Over time, this will punish everyone through higher premiums.
At an MPI auction in late November, for example, a 1994 Oldsmobile 88 with a broken rear window was listed as irreparable because of its age. As scrap, the car ended up selling for $250. If the rear window had been replaced for a few hundred dollars, however, the car could have fetched MPI approximately $1,000, based on used-car sales data.
Some cars sold for scrap by MPI simply have a few paint scratches, hail damage or a missing headlight. After passing a mandatory safety inspection, all such cars would be ideally suited to unemployed Manitobans eager to find a job. All represent a substantial loss of revenue for MPI. No private-sector insurer would act in such a profligate manner.
By blindly following a 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 could go a long way toward solving these problems.
 Related Items:
is currently Editor at Large of Maclean’s magazine. He earned a Master’s degree in Economics from the University of Alberta in 1989; and was senior analyst for the Alberta Liberal Caucus in the early 1990s under Liberal Leader Laurence Decore. Since then he has worked extensively in journalism. He has been a staff member of Alberta Report, Canadian Business and the National Post, where he was a founding member of the editorial board in 1998, as well as Maclean’s. In addition, he has written widely for publications including Reader’s Digest, Saturday Night, Equinox, MoneySense, Canadian Geographic, Prospect, Globe and Mail, Vancouver Sun and National Post Business. He has given presentations and is a frequent media commentator on public policy issues including daycare, family taxation and poverty. Feedback:
|
Peter Shawn Taylor, 
