Cash For Clunkers Is A Lemon
What brought this train of thought about was Nina’s post and then Alex’s post on the “Cash For Clunkers” bill… and a bit of a rant too… sorry… but I really hate it when our elected idiots don’t think things through.
The idea is not even a good one… unless you’re a bank or love owing everyone and their brother money, living paycheck to paycheck… and I’m from a family that had new car dealerships for over 40 years and we’ve had a dealer license for over 50 so you think I would be in favor of it.
Beyond the quote “good” it does in the short term the costs down the road have not been looked at.
First and foremost it is being paid for with our children’s and grandchildren’s money… it will be clawed back in the form of higher taxes in the future.
Secondly it is a lot of fluff, smoke, and mirrors… a billion dollars seems like a lot but up against the scale of the auto industry in the US it’s NOTHING.
I live in Orlando… home of 4 major theme parks… we have over 100,000 rental cars alone and the the rental firms spend more than a billion a year on replacements alone… in one city… and not even a truly large one on top of that.
We have a large number of new car dealers and two of them… one a Ford dealer and the other a Chevrolet dealer that each came within a whisker of breaking that 9 zero mark on sales in 2007.
There are 23,000 new car dealers in the US. Based on the idea that a billion bucks will let the government subsidize 250,000 cars that means each dealer can take in… 11 clunkers…
So (and you already see it) they want to throw even more money at it because its so popular… I bet it swells to 10 billion… let me just take my nieces piggy bank down and hand it to the car salesman and get it over with.
But the effects are only going to be temporary as far as a spur to the economy… once everyone has a new car they won’t need one for couple of years and sales spike downward how will they prop up sales then?
How many dealers will go under and how many people dependent on those dealerships will lose their jobs waiting for all these new cars to wear out?
And the scrap yards that have to certify that the clunkers are shredded or crushed in six months (yes that’s in the law)… oversupply in the metals market… prices paid drop… hard times for the recycling industry.
They do not need to interfere with the normal up and down cycles of the markets. This program will cause a massive upswing that will invariably be followed by a corresponding downswing.
But guess who is going to make out like a bandit for 4 or 5 years?
Why the banks of course!!! Someone has to finance the cars being bought and the interest charged over 5 years dwarfs any profits the manufacturers or dealers make… and OOPS… it’s not tax deductible… unless you by chance still have a HELOC to draw on.
And lets not forget the states… sales taxes, tag and title transfer fees, doc stamps on loan papers and for states that charge an annual excise tax based on the value they get more money for a couple of years on the sudden increased value of your new car over your old one.
Oh! I forgot the insurance industry… the bank will make you have collision and comprehensive on the new car when you didn’t have to have it on your paid for oldie… I knew they would find a way to make us prop up AIG other than with a Treasury loan.
And… OH! MY! GOD!… they did think this thing through… How stupid could I have been!
This is just a way to prop up the banks, insurance companies, and state and local governments at the expense of the taxpayers and small businessmen without the political consequences they would have if the Fed sent them checks and it makes good re-election propaganda.
In the words of Rosanne Roseannadanna…
“Never Mind.”
Photo credit: Flickr.
I have to completely disagree with you here. There’s two things to be considered.
First of all, is the program accomplishing what it was intended to do? That seems to be an unqualified yes. It’s a three-fold objective, getting stimulus money out where people will use it immediately, encouraging people to buy more energy efficient products, and specifically stimulating the car industry. Slam dunk.
Secondly – and what you seem to have the most problem with – is this program actually costing us more in the long term by artificially affecting people and businesses otherwise?
You mention how our children would have to pay for this in the future. Frankly when our choices were a non-liquid depression with less deficit or a liquid, lighter recession with more deficit, from a quality of life standpoint I think the choice is clear. Our children would be paying for something one way or another because of our national financial practices and it didn’t start in January 2009. I personally would like to see the economy in a position to help them better deal with it and the idea of letting things work out themselves doesn’t seem to be a means to that end.
The scale of the money being employed in this program is less important than the movement of that money. That’s currently our biggest concern. People aren’t spending fearing their assets will freeze up. The sooner people spend, the sooner credit markets clear allowing people to spend more and easier, the sooner we can pay of deficits. There’s no smoke and mirrors in that concept.
I know it’s difficult to swallow, but unfortunately we’re all in this together. As a culture, we got ourselves into this mess by greedy mismanagement and materialism. It’s no particular individual’s fault, but the reality is in a capitalist society we all do better when financial institutions do better. We get out of it by sucking it up, facing reality, acting more responsibly, and making our legislators do the right thing in holding financial institutions to better standards and practices. If you want to do something for the future, write a check and your congressional representatives.
The program is doing what it intended to do (the publicly stated one) which is help the auto industry sell cars.
However IMO (backed by my families 50+ years in the auto business) and that of others all this has done is move the normal buying season ahead a couple of months and helping clear out the old model year and when congress finally says enough and closes the purse sales are going to collapse.
And unlike going to the store and buying shirts and maybe a WII autos are usually the second most expensive thing a person normally buys and it is VERY rare for someone to pay cash…so everyone goes into debt…and the dealers don’t hold the paper…banks do.
They want us to do the EXACT thing that has caused the economy to crash to begin with GO INTO DEBT.
The only people this truly benefits are the banks. Also the state and local governments (in Florida) get about 20% of their Sales Tax Revenue from the sale of autos so any uptick gives them more money.
I’ve seen firsthand what happens when you have a glut in the metals market. During Clintons time he allowed the Gorbachev and the Russian goverment to dump high grade steel here in order to prop up their economy…in 3 months the price for scrap cars plummetted from $3.75 cwt (hundred pounds) down to $.75 and didn’t recover for over a year until the glut was absorbed so we’re looking at this again.
We can always lay off people like we were forced to then…ooops they can’t make the payment on the C4C they bought..Repo it and trash their credit.
And in the scale of the US economy and the auto industry I don’t know how anyone think this will have more than a feel good effect…their are 260,000,000 registered vehicles against (now with more money) 750,000 potential clunkers…not even a fraction of One Percent of the total.
Would I settle for a long drawn out recession with little government debt pileup over a big deficit short one and pay later??
I’ll take the long one…the lessons that are most painful are the one best learned….ask the Germans who save like crazy about the Weimar Republic and taking a wheelbarrow full of cash to the market hoping it will be enough for a couple of potatos….helped bring Hitler to power.
As a culture we did get ourselves into this mess…but I and most of those reading these posts did not participate in that culture to the extent of others….and it is PURE SOCIALISM to expect those of us who did not participate to have to fund the recovery of those who did…there has to be a point where one has to pay for ones mistakes no matter how much it may hurt.