Comments on: What’s Really Wrong With “Cash For Clunkers”

By: Matthew

Matthew — Fri, 07 Aug 2009 02:36:12 +0000

As with most government programs, the success of the “cash for clunkers” program is not measured in how well the consequences of the program align with the stated goals of its advocates. Nor is it measured by any economic impacts the consequences might cause. Instead, just like the example of the public library in George Dance’s recent article about Booze and books, the success is measured by participation or usage, not by any measure of the value provides or harm it does to our economy. The trick is to define the program specifically so that it has a known demand so the usage is high. Media spin and politics will make sure the right people hear the program was successful and beneficial. I heard a bit on NPR just today about the downstream benefits that recycling all these old cars has. Ridiculous of course, but the perception amongst the voters is far more important than the actual results and consequences. Certainly there will be follow-on programs, cash for major appliances, cash for tools, etc.

By: Akston

Akston — Sat, 01 Aug 2009 07:23:43 +0000

I don’t think of myself as suffering from overly-limited means, but I’ve never purchased a new vehicle without a loan. I couldn’t find the statistics with a quick search, but I’ll go ahead and assert that most Americans have a similar history.

This program takes future earnings from everyone in the nation to subsidize the destruction of functioning assets held most likely in low-debt or no-debt condition, and requires the recipients to most likely assume new debt purchasing a new vehicle.

Aside from all the other inevitable unintended consequences which will doubtless arise from this latest market distortion, encouraging buyers into new debt they may have otherwise forgone – replacing with a used car, saving before buying, etc. – seems very much like the housing bubble to me.

Social engineering fails so often for a large variety of reasons. One of the main reasons is that a handful of Federal policy makers cannot possibly understand, let alone manage, the market interactions of hundreds of millions of consumers.

By: Ben

Ben — Fri, 31 Jul 2009 21:36:42 +0000

I would say that makes sense. Having said that, I don’t really view it as analogous to the real estate bubble unless people are borrowing to buy these cars, which they shouldn’t be doing (not to say it doesn’t happen, but this program seems to be about buying cars upfront). But the cost of maintaining the car, insurance, etc… is the same to them regardless of whether they used this program or saved up their money to buy it. Am I missing something?

By: Doug Mataconis

Doug Mataconis — Fri, 31 Jul 2009 21:04:57 +0000

Ben,

Because CARS is mostly likely attracting people from both groups.

By: Ben

Ben — Fri, 31 Jul 2009 20:05:58 +0000

You’re saying that people are buying cars they otherwise cannot afford causing a bubble, yet you’re saying this isn’t doing much help because these people would have bought the cars within a few years anyway. Can you explain how they can coexist?

By: SC

SC — Fri, 31 Jul 2009 18:30:55 +0000

Peter,

It is a requirement that the “clunkers” be rendered undriveable before leaving the car lot (specifically, the engine – the rest of the car can be chopped up for parts). The oil is to be drained out and a solution poured in in its place and the engine ran until the motor is irreparably damaged.

Since the engine is usually the valuable part of the car, salvage yards are generally not as thrilled with the program, since the cars they will be receiving as a result of this will not be as valuable. Also, some yards are already getting a glut of similar vehicles, so they may be looking at a surplus of used parts as they may have an excess of parts, and at the same time fewer of those models on the road needing them.

By: Jaors

Jaors — Fri, 31 Jul 2009 17:28:05 +0000

It doesn't matter if they more money. They problem is still the backlog. Read this article: The Real Reason for the "Cash for Clunkers" Suspension. The ex car salesman blog shares exactly why they stopped the program. Even reports that some sales managers are calling asking for the money back because they were denied the rebate when the final paperwork was submitted but their car was already ruined by dumping a solution in the engine. They now have no car. Scary. See: http://tinyurl.com/ml9sdo

By: Peter

Peter — Fri, 31 Jul 2009 16:53:48 +0000

Last year I sold my old dodge pick-up to my parents. They are sincerely hoping that the program will continue at least another month so they can use it to get a new car (you need to own a vehicle one year before it is eligible). I agree that it should be no surprise that this program is immensely popular, everybody who qualifies will jump at free money.

But really, this is only condensing the new car purchases that would happen the next 6 month to a year into a tiny time frame. As soon as the program ends there will be a huge dropoff in sales.

I do have one question, what is happening to all the old clunkers? Are they being destroyed, which would push used car prices up, or are they being resold, which would push used car prices down?

By: Don Lloyd

Don Lloyd — Fri, 31 Jul 2009 16:02:12 +0000

If I were in the market for a used car, this is a typically wonderful government program.

My tax dollars are used to damage/destroy the supply of used cars, raising the market price of the lower mpg cars in particular that would be especially appropriate for my less than 4000 miles per year requirements.

It rewards those who have been driving clunkers for years at the expense of those who have made unsubsidized purchases of modern, but not exotic, cars.

Regards, Don