Here is what I originally wrote about when Cash for Clunkers was still being debated in Congress, when I was still unsure as to whether this bill really had a chance, since it seemed like complete idiocy to me – little did I know:
Cash for clunkers sounds like a great idea. It seems so simplistic: I get money for turning in my old car. However, there is much more to this than meets the eye.
Cash for clunkers is another brilliant liberal idea, and by brilliant, I mean brain dead.
Liberals say that if you trade in your used car, you will receive $4.5K for a new one. It can’t be that basic if it comes out of D.C., so why isn’t the media challenging this piece of legislation? We all know the answer to that one…ask ABC.
There are numerous downsides to this bill:
– If dealers anticipate a rebate for a trade in, they will only increase their base price for the car to make up for it.
-People drive old cars because they cannot afford new ones how will $4.5K actually help? The down payments that many banks are asking for are much higher due to risk and tighter lending practices. The monthly payments are also tough to meet if you are of low income status. I just bought a new Mini Cooper and have a great credit/beacon score… but because I couldn’t put down $15K on the spot, I couldn’t get a bank loan. I had to settle for the higher rate at the BMW dealership.
-This will also increase the cost of used cars. If more people are trying to purchase new cars, then used car dealerships will suffer and will be forced to raise their prices to make a profit, rather than make a profit from volume of sales. In essence, this will hurt the lower middle class and the poor – the very people he professes to help.
-Charities will be negatively affected by this law. There are over 350K charities that are used car donors. These charities will see a direct decrease in donations if people believe they are getting a kick-back. These charities will have to cut staff and operations, causing more unemployment and fewer used cars for those who really need them.
-The proposed cost of this law would be $4B. This is another “government pays” bill. Therefore, one would think that maybe this is another bill that is circular… The Government will tax you to help pay for your car… why not just pay for it yourself then? All estimates that come out of the government are conservative at best; therefore, you can and should always tack on another 50% to the original value.
-Other industries may suffer if there are consumer shifts. Priorities of consumers will shift based on whether they think they are getting a better deal. If cars go up something else will inevitably go down.
-The fact that the Democrats are global warming alarmists happens to be another excuse they will use. They will exclaim that used cars cause more pollution… I don’t believe that in the slightest, so I won’t even touch it. There is still plenty we do not know about hybrids and whether or not they truly are as effective as people would like to believe. I also do not believe in the hoax or the hype – ’nuff said. Personally, my Mini Cooper’s gas mileage goes up as it gets older…just sayin’ And will the government really be able to control the types of vehicles that people purchase with their rebate? Not yet, at least.
-This is another pay-to-play scheme to pay off the $400M campaign donations given to Democrats and Obama by the UAW. If old cars are scrapped, new cars will have to be manufactured and purchased and more money into the pockets of the UAW.
This type of legislation has been tried before, in another country no less:
Germany has used a similar program for a few months, and of course it has actually cost at least three times more than government “estimates.” More than this, studies of the German experience have shown it has largely led to a mere shift of spending priorities. Consumer electronics sales fell in ratio to automobile spending meaning there has been no net gain for Germany’s economy.
It is so interesting and disturbing how Obama and the Democrats have gone after charities and small business. Charities have been attacked on both the stimulus front, the taxable deductions front, and now this idea for clunkers. A study showed that conservatives give more to charity than any other ideological group, because they do so through their churches. These churches are involved in many charities across the nation and it’s quite disheartening to see the Liberals be so antipathetic towards religious movements.
Obama and the Democrats are hell-bent on making people so dependent on the government, and only the government, that they will soon need to get their diapers changed by them too. This is insanity!
So what exactly has happened since they did in fact wind up passing Cash for Clunkers?
– The Cash for Clunkers bill did in fact pass, after it’s passage, even moderate like McCain tweeted “The American people have just been sold the biggest lemon in US history.”
– I was slightly wrong on the original allocation of the program. I had guessed that $4B would be required to pass this bill and would come from tax-payer dollars. This would mean that those who pay taxes and are trading in their cars are really getting a rebate that they paid for. The original allocation was $1B instead of $4B but the government figured that the $1B estimate would last until November 2009 when the program would come to an end. WRONG! The government, as usual, is so incredibly inefficient, incompetent and has no clue how to conduct long-term strategic planning that it required the passage of another ‘burst’ of money – $2B. That’s a total of $3B spent on this program so far… I wasn’t that far off 😉 by November it could be more!
– The government has squelched on its promise to reimburse dealerships involved in the cash for clunkers plan within 10 days, but after weeks of the program’s start, dealerships have yet to see a dime.
Dealers say the government is putting them in financial peril. The law requires dealers to deliver a new vehicle to qualifying customers, even if the government payment hasn’t yet arrived. The government says it will reimburse dealers within 10 days of the applications’ approval.
But dealers say payments have been slow to arrive. “We’ve got 155 clunkers on the ground and no money in the bank,” says Earl Stewart, owner of the Earl Stewart Toyota dealership in North Palm Beach, Fla. “We’re selling ourselves into a very negative cash-flow situation.”
With dealers on average earning about $1,000 on a new-car sale, most face a loss on each transaction until the government pays up. Mr. Stewart says the government owes him $672,700 in rebates and hasn’t paid any. “The more cars I sell, the worse it gets.”
– Used car prices, and other dealerships not involved in cash for clunkers have had to raise prices due to an increase in inventory on their books and no demand. The demand for cars has been shifted to this program and other dealerships, especially older used cars are suffering.
– The pollution meme has not been heeded, many are purchasing cars that do not get the best MPG. The program also stipulates that perfectly usable cars that are traded in are to be scrapped and junked and the engines stripped out. The crushed cars are then put into a landfill. How does this curtail pollution? That’s rhetorical…
– Another interesting tidbit surrounding cash for clunkers has been the uptick in foreign car sales. So much for driving business back into the American economy- most of the cars being purchased after trade-ins are Hyundai’s, Toyota’s, or Honda’s, as evidenced in the picture below:
– An example of the government’s inefficiency is how much money is really being spent on every 3.5K-4.5K rebate. The current real cost estimates to the government are 45.35K for every car. How would a business survive if every service or product produced was actually costing more than what it was being sold for. That means that the government, who is already spending our taxpayer money on these rebates is technically spending about 10x more to cover overhead, administrative, and other costs to produce new cars etc. This is probably the biggest waste of taxpayer money I’ve seen since… oh, let’s just say… the stimulus.
The “cash for clunkers” program is yet another boondoogle – an expensive waste of precious taxpayer dollars. Government spending should be reined in, in light of the multi-trillion dollar unsustainable deficits that this nation now faces. However, if we must increase government spending, the money would be better spent on infrastructure and education improvements that might help bring jobs back to America, and encourage long term growth, rather than cosmetic improvements to the short term earnings of makers of high mileage automobiles, many of which are foreign companies.
This government is, unfortunately, a reflection of the current state of economic immaturity that prevails in America. The vast majority of people, including most people in Congress, do not understand the forces that drive the real economy, and see only the short term view. That is how they get manipulated into allowing the Federal Reserve to behave like a slush fund for big banks, passing programs like TARP into law, and enacting programs like “cash for clunkers” which all abuse the taxpayers.
– Other industries are in fact suffering because people have chosen to buy a car, foregoing something else they would have otherwise purchased instead.
– The biggest loser in all of this, besides the American public, are more specifically the charities and poorer individuals who really do need cars. These cars being traded in are not that old since the bill stipulated that couldn’t be REAL clunkers. Real clunkers are those ‘hoopties’ that probably couldn’t pass an emissions test and have weird blue smoke billowing out the back. No, the cars being traded in are usable Toyota’s, Honda’s, Chevy’s etc. that still have plenty of years and mileage left on them. Instead of giving the trade-ins to charities to make the most of the vehicles, the program, and give back the most to everyone, they are dumping the cars into landfills.
If Obama and the Democrats were so interested in social justice and really caring for the poor, they would be all about charitable donations and giving away these cars to make a difference. Instead, charities, which are 80% backed by Christian and other religious institutions are being punished. Reports show that charities are suffering and so is the lower class.
For the government to consider this program a success, especially after that computer worm was found at cars.gov, it has become blatantly obvious that the politburo running DC has completely lost its ‘collective’ mind. So I ask, with the utter lack of strategic planning, and the consideration for the entire picture/cause and effect that goes into most business decisions, is it any wonder why Americans are incredibly fearful of the government getting involved in our health care, our energy, and our lives in general? The government couldn’t run the Mustang Ranch and figure out how to sell the most profitable commodity: sex. What would ever make anyone believe the government could run as lemonade stand, let alone giving them a blank check to run important bureaucracies that would have some control over our lives?