Saturday, August 8, 2009

Cash for Clunkers Exposed

These are too poignant to not share. These are excerpts from real cash for clunker consumers - both those that bought new cars and a couple that did not. The full CNN.Money article is here.
Julie [from 15 mpg to 21 mpg]: I never could have afforded this without the rebate programs, nor would I have purchased a brand new car. And it's not lost on me that this program is funded by taxpayers. Does it make me part of the financial problem [D: Not really. If you didn't accept the money, someone else would have.]

Pete: I mourned a bit for the old cars that might have some useful life left. But we would've never been able to sell the Town Car [from 18 mpg to 27 mpg] for as much as the trade-in.

Sterling: Is my 1983 van [11 mpg; denied] a classic, Congress? Maybe they consider it too classy to be scrapped and think it should still be running up and down the highways.

Michael [19 mpg; denied]: It's unfair that a 3-year-old Hummer gets the trade-in while a 26-year-old car doesn't qualify. It's just frustrating. I volunteered for President Obama at the phone banks. I got my transparency, but I don't particularly like what I see.

John [from 15 mpg to 28 mpg]: I'd like to thank all the other people in the country who helped my daughter get a new car.

And I'm sooooo tired of hearing the politicians tout the huge rise in new auto sales. They say Cash for Clunkers is 'priming the pump' for sustained sales when the program ends. Cash for Clunkers is expected to subsidize the purchase of approximately 750,000 new vehicles. I would argue that the vast majority of those sales would occur regardless of the program. Cash for Clunkers merely provides a strong incentive for consumers to move now during a very small purchasing window. Only now, those people aren't going to be in the market for a new car later on, placing additional downward sales pressure on future periods. 

Once you start on the hard drugs you have to maintain your high so that you don't feel the pain of the crash. We've been seeing this for awhile already. Cars used to simply cost what they cost. Then we started seeing some dealer incentives. Then we saw cash allowances direct from the manufacturer. Then we saw 0% financing for 60 months. Then we saw employee pricing. Then we saw lifetime warranties. Then we saw buy-back guarantees in the event of job loss. None of those 'hits' has proven to offer anything more than a brief 'high' to the industry. Now we've added a $4,500 involuntary subsidy from the taxpayers and I predict we'll see just another spike before falling to an even more depressing low. 

I'd love to be wrong.


I think the real loser in this whole thing - other than us - is the entire infrastructure of the used car industry. The government has 'bricked' 750,000 used cars. How many repair shops will now go out of business? How many people that can't afford a new car would have liked to buy one of the quality used cars that was permanently disabled?

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