By Luther Hollis III
If you are one who pays any minute amount of attention to the news then you know of the reports about the “Cash for Clunkers” deal; evidently the program is already broke – $1 billion in four days, supposedly.
Cashing in on clunkers
Now the dilemma is whether or not to provide an extra $2 billion to extend the life of the program.
Boo clunkers, yay clunkers!
Various op-ed pieces, found in print and around the internet, support both sides of the argument regarding the government’s car-buying incentive program.
Of the issue, Jeffrey A. Miron - senior lecturer in economics at Harvard University and a senior fellow at the Cato Institute, noted the following, “cash for clunkers is therefore just redistribution to certain consumers and to the auto industry; it is more bailout dressed up as environmental policy. Congress should end the program, not expand it.”
On the opposite side of the table, an anonymous editorial remarked, “Even though the targets aren’t really “clunkers,” the program is relatively easy to understand and directly stimulates purchases for a devastated industry. Ford is announcing its first year-over-year sales increase in two years. Since taxpayers now are part-owners of General Motors and Chrysler, the public is getting something for its investment.”
Something smells of burnt clutches
Both sides of the argument make good points and there are seemingly positive results stemming from the “Cash for Clunkers” program. Then again, there were also initially good results stemming from the out-of-control mortgage lending of the early 2000’s and the wonderfully designed adjustable rate mortgages.
Personally, I smell clutches burning with this whole cash for clunkers arrangement.
- American tax dollars are funding the clunker deals. (Yes, we are paying for a portion of people’s new cars).
- The stipulation of the clunkers having to be scrapped and totally destroyed is not really helping anyone or the economy – there are millions of people in the U.S. who cannot afford a new car and could use those lower priced vehicles to get a job, to get a paycheck, to spend back into the economy. Instead, they do not have reliable transportation and they give up their job search, leaving them with very little money to recirculate into the economy.
- “Cash for Clunkers” is a backdoor bailout. Instead of giving the jet-riding big three CEO’s the bailout they requested earlier this year, they get a piece of the pie in the clunker deal (foreign car makers also have a piece of the pie).
A news article on Yahoo! News made a very strong point, “while the ‘Cash for Clunkers’ program has boosted auto sales by as much as 200,000 vehicles in a single week, overall industry sales remain at levels not seen since the recession of the early 1980s.”
In other words, there was a significant increase in auto sales (due to the cash for clunkers program) but those sales are still extremely low in comparison to the industry.
Rise of the auto bubble…again
Have the lessons of the huge credit and housing bubble already been forgotten? Evidently so. It seems to me that the “Cash for Clunkers” deal is subtly akin to the housing bubble that has crippled the U.S. economy. The government is giving away all this money to the car dealers to write up these deals and get less eco-friendly vehicles off the road, and to spur the auto industry. Getting people out of their old cars into new cars.
The housing bubble went the same way; the government and banks were backing all of these funny-style loans to get people out of their old rental apartments and into new homes. You know how that story ended.
Will a large amount of auto inventory be moved from dealerships to driveways? Absolutely!
Will we see auto repossession agents in even more numbers in forthcoming months? Absolutely!
Logic tells me that those who could afford new cars prior to the clunker deal, bought a new car. Those who could not afford a new car, drove their clunker until hearing that the government was going to pay for a portion of their car. Now, they trade in their clunker for the new car they couldn’t afford in the first place.
While some individuals will be able to maintain the new car payment, there are going to be many who were duped into the new car and later learn the hard lesson of making payments now.
VIDEO ADDED 8/4/2009
Well, those are my two pennies on the clunker deal – actually, I’ll keep those two…I’m saving up for a car.
Leave comments about the “Cash for Clunkers” operation – are you for or against? Why?
2 responses so far ↓
yep sure // August 4, 2009 at 5:15 AM
I agree, but would go further, the idea that taking less fuel efficient cars off the road by destroying them and stimulating demand for new car production for ENVIRONMENTAL reasons is totally perverse and frankly, obscene.
I don’t know current figures but about 15 years ago it took more energy to produce a car than is ever used by that car in its lifetime (with all the standard extras in cars today I can only imagine this is the same), so a small percentage improvement on the energy used in its lifetime (through fuel efficiency) is never going to touch the energy cost of creating a new car.
So its not even environmentally sound.
Hollis333 // August 4, 2009 at 1:45 PM
@yep sure: You have made an excellent point and addition. As I was reading through articles related to the “cash for clunkers,” I got kind of hot under the collar, so to speak. I took a look at the environmental angle and it just irked me even more.
The government’s stance is to remove the so-called clunkers from the roads of America, therefore eliminating the drag on oil by these fuel inefficient vehicles. Never mind that many of these vehicles are in fairly well running condition. People are condemning perfectly good vehicles at the hand of the government.
I recall the Pied Piper story and can only think that Americans are being herded toward an uncertain future.
The lies and propaganda that are used to push this stuff through are an insult to the intelligent people of America (not all are).
Thanks once again for your addition!