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…
Photo credit: Flickr.