All indications suggest quite a buzz around the government's just-launched Cash for Clunkers program. The program, also known as the Car Allowance Rebate System (CARS), is designed to increase new car sales while getting "gas guzzlers" off the road for cleaner air, reduced oil consumption and World Peace.
Okay, maybe I added that last item myself.
But the program, if you ask certain politicians, is certainly being hailed as the savior of all that's right in the automotive world. And one that's simultaneously reducing all that's wrong.
However, being the cynical/logical/critically analytical person that I am, I'm going to have to call P.C. Shenanigans on Cash for Clunkers, as I did in a CBS Evening News story from last Friday (shown above). I'm also going to describe how this program could/should have worked if the wise, well-grounded people ran the world.
That may sound like a back-handed insult directed at politicians, so let me be crystal clear on this point: most government representatives are so painfully out-of-touch with the real world their legislative efforts create more problems then they solve (and there goes any mystery on my stance regarding national health care...).
The latest example of this long tradition includes Cash for Clunkers. What follows is a list of the program's problems and (more importantly) how they could have been avoided:
1. Problem -- Cars must meet certain mileage requirements to qualify: This is born of the idea that if a vehicle gets some arbitrary fuel mileage rating it is "bad" and shouldn't be driven. Nevermind the variation in EPA estimates and real-world numbers. Nevermind the driving habits of individuals that could easily make a Crown Victoria far less "destructive" to mother earth than a Prius (i.e. the 75-year-old who drives his Crown Vic 600 miles a year versus the 34-year-old Prius driver doing 20,000 a year). And don't get me started on the EPA's last-minute change to their own fuel mileage ratings that botched thousands of nearly done deals. Makes for excellent consumer confusion and frustration (and scores plenty of political points), but it's also terrible energy and economic policy.
How it should of worked: Is your car more than nine years old (1999 or earlier model year)? Congratulations! You qualify! Simple. Easy to grasp. Gives people who are (wisely) holding on to older, perfectly functioning vehicles a reason to consider buying a new car.
2. Problem -- All cars traded in must be crushed: This, in conjunction with Problem 1, assumes older, supposedly "gas guzzling" cars should be destroyed, never to darken our air with their carbon-spewing ways again! It also means low-income families and charities just got screwed, and it makes it that much harder to justify using the program because only cars worth less than $4,500 makes sense for it. Also, the environmental benefit of crushing a perfectly functioning vehicle to build an entirely new one (even a supposedly cleaner and more fuel-efficient version) is dubious at best.
How it should have worked. Only cars rated at less than, say, 15 mpg get crushed if traded in using the Cash for Clunkers program. Thus, If you had a car worth $5,200 in dealer trade-in (a 1999 BMW 328i, for instance) and you could get another $4,500 from the program it would give you almost $10,000 toward a new car purchase, yet it wouldn't require the destruction of a fully functional (and still relatively clean, efficient) vehicle. Now you're stimulating new-car sales without impacting used car values and availability, and you're not unnecessarily burning energy to replace a car that still had a useable lifespan.
3. Problem -- Only $1 Billion Dollars Allotted for Program: In case anyone forgot, the TARP allowed the U.S. Department of Treasury to spend up to $700 billion purchasing troubled assets. The government has also provided GM with $50 billion and Chrylser with $15.5 billion over the past seven months. Can we really only afford a mere billion dollars (boy does it depress me to throw numbers like that around...) to improve auto sales in this country? According to Edmunds' research, this will only increase vehicle sales by approximately 50,000 units over what otherwise would have sold between now and November 1st without the program. Translation: We all just spent $20,000 per car to improve auto sales. Your tax dollars at work!
How it should have worked: There should have been $10 billion allotted for the program which, when combined with the changes I outlined above, would have added about 2.5 million units to 2009's new car sales. That would have put us at 12.5 million in new car sales, or within spitting distance of last year's number. This is also well above the 10 million annual sales both Chyrsler and GM claim they need to be profitable in their leaner, meaner forms. And it would have done what all these billions in government money is supposed to be doing: keeping factories open and maintaining job security for a troubled industry.
If any of these solutions sound familiar it's because Germany's highly successful program to stimulate new car sales utilizes many of them (simpler qualifying rules and more goverment money to support it). So I can't even blame the U.S. politicians for simply being unaware of how to run Cash for Clunkers. The model already existed, all they had to do was copy it.
I guess our politicians decided to make it better... (sigh)
By 1487
on July 28, 2009
06:27 AM
"Translation: We all just spent $20,000 per car to improve auto sales. Your tax dollars at work!"
How the hell did you come up with that figure? Most estimates have predicted about 250k total bonus sales will come from the program. 50,000 times $4000 is $20,000,000 by my math. How do you get $1B from an extra 50k sales? If the money isn't claimed it wont be spent.
By 08_miata
on July 28, 2009
06:42 AM
Leave it to our government to take something that should have been a simple, straight-forward idea and turn it into a convoluted mess.
Oh well, I guess this is what we get for electing lawyers as politicians...
By blueguydotcom
on July 28, 2009
07:11 AM
The entire program shouldn't exist. And yes, it should have been associated with cars over X years old, not a silly low MPG number like 21. My wife's got a Corolla - a 95. It was a present from her dad when she turned 16. It's now our Mexico car. Quite honestly we don't need a third car but if we could trade it in for stupid cash, we would!
By blueguydotcom
on July 28, 2009
07:12 AM
The entire program shouldn't exist. And yes, it should have been associated with cars over X years old, not a silly low MPG number like 21. My wife's got a Corolla - a 95. It was a present from her dad when she turned 16. It's now our Mexico car. Quite honestly we don't need a third car but if we could trade it in for stupid cash, we would!
The point is, the Corolla's listed at 25+ MPG. Yeah, so it doesn't qualify. It's a clunker and it mostly collects leaves and webs but in the government's eyes it's a viable car - just not one we'll drive!
By pflyer
on July 28, 2009
09:25 AM
Karl,
I was/am opposed to the bailouts of any business. Only the ignorant, naive and gullible could support an auto bailout. I remember several on this site defending the bailouts in order to keep GM/Chrysler out of bankruptcy and save jobs. How did that work out for us...
However, I have turned full circle and decided to confiscate as much of my neighbor's tax money as possible. Here's how:
1. I have an old 1998 Dodge Ram. It runs great and has years left in it, but I would not mind a newer truck. It qualifies for the full $4500 if I buy a new car that gets 10 mpg better. (not hard).
2. I plan to wait until the 2010s come out in force and buy a brand new Honda Civic or Toyota Corolla. I need something that is desirable to Car Max or a used car dealer. I plan to spend about $10-11000 and my truck for that vehicle.
3. I plan to drive that vehicle from the new car dealer to the used car dealer and take a cash trade. This way I am able to monetize the government voucher.
4. I don't have to worry about selling my 1998 truck. I don't have to worry about selling the new vehicle. It should be worth what I paid for it (or close to that value). I have sold two used cars to dealers (Car Max and local dealer) and it has been pain free and profitable. A 2010 Corolla with 15 miles should be worth something, I would guess.
5. Next, I plan to buy a 2006 or so Hemi or diesel Ram as my replacement truck. The government (my neighbors) help me buy a newer truck and pay me to do it! Is this a great country, or what?
6. I am totally serious, by the way. I hope others do the same.
By editor_karl
on July 28, 2009
10:08 AM
PF: The greenies would likely look at your plan and say that, at the end of the day, you replaced a 1998 truck with 1998 fuel mileage and emissions standards with a 2010 truck with 2010 fuel mileage and emissions standards, and you even made an essentially new Corolla/Civic available to someone on the used market for a cheaper price than new.
Sure, you did it all with tax money, but that's the whole point of the system and, in their eyes, it's the government's job to tell us all what to drive and how to behave, so everyone wins! (Except those pesky fiscal conservatives, but what do they know, right?)
By gooney911
on July 28, 2009
11:02 AM
Karl,
Using your example of the man who drives his Crown Vic 600 miles per year, a 1999 Crown Vic with 6000 miles on it would be eligible for the program under the guidelines you listed above.
What about adding a minimum required mileage to the guidelines in addition to the vehicle age? (perhaps 120k or 125k on the odometer to qualify) That way, you wouldn't be touching cars that aren't driven often, and are focusing on the high-mileage cars.
By andersendl
on July 28, 2009
02:04 PM
How "Cash for Clunkers" should have worked in the first place? As if....
It should never have been done in the first place, period. It's an utter waste of taxpayer money, and simply the worst kind of short-sighted stupidity we've come to expect from the DC political class. The same kind that got into this mess in the first place.
What was it Einstein said about the definition of insanity....?
By myob
on July 29, 2009
09:13 AM
Nice try pflyer, but unfortunately there are some problems with your plan.
1. Even in the lowest trim, smallest engine form, with typical miles your Ram is worth about $2500. They don't give you the cash plus your trade value, they give you the $4500 in lieu of the trade value and crush your car. So you're being given $2,000 vs $4500 from your fellow taxpayers.
2. You'll get nothing near what you paid new for a new car when you take it to a dealer to trade it. Especially when you want cash, not to buy another vehicle. Remember also that you have paid sales tax on your vehicle that won't be returned to you when you trade. You'll be lucky to lose only $5,000 or so when you do this. So now you're down $3,000!
3. Ask yourself how Carmax makes money if they pay you what you paid another dealer for your car. Obviously they don't. The only way to "profit" trading in cars is to buy them at far below even trade-in value. Even with a used vehicle this would be nearly impossible unless you hit an estate sale or something like that.
4. Your new Hemi Ram will cost you $30,000. So now you're down a total of $33,000 to take advantage of what you saw as a loophole in the system.
I like how you're thinking, but the devil in the details means it won't work.
By pflyer
on July 29, 2009
12:31 PM
myob,
Thanks for the reply.
1. I want to buy a used truck, not a new one. In my comment I said I wanted a 2006 or so Ram Hemi or diesel. BTW, have you priced Ram 2500 verses 1500. The 2500 is usually just as cheap or cheaper and comes with the Hemi standard. Diesels command a premium. I am watching a couple of trucks on Craigslist. It sounds like there are desperate sellers out there. I have cash so that's good.
2. I have dealt with Car Max and one other independent dealer. Believe me, if you buy right, which I plan to, you will do just fine. I don't know if you are aware how Car Max values your trade-in. They call the local dealer's auction and take the price of the closest vehicle to your trade-in that has sold that day. I have been in the room with them when they have made the call. True, it's the wholesale price, but it has been my experience that for recent model cars (especially a new Toyota/Honda), the auction price is very strong. People don't buy cars today, they buy car loans. Car Max can offer loans to less than credit worthy individuals. I cannot. It works for all parties. My last trade-in to Car Max was a one year old Honda Civic. They gave me a very strong price and still made about $1500. It's amazing to me how much people pay for a low mileage used car. New ones are just as cheap.
3. I also get whatever scrap value the 1998 Ram has. It's not much, but it might mitigate some of the sales tax. Rebates and other discounts are mine, also. Taxes are a bummer, but oh well... about $650 on a $10,000 purchase.
4. My 1998 truck runs great; looks terrible. Each son has wrecked it at least once. Middle son gouged the side a couple of months ago and my air conditioner went out last month. As I said, it runs great and probably would last a while, but loos like crap. I would be lucky to get $1500, and that would be from a lawn crew or someone like that.
Hopefully, by the end of October, I will be driving in my "new" truck subsidized by the government (that's you and me, BTW). Once again, is this a great country, or what?
By billt9
on July 30, 2009
04:20 PM
Objective 1: boost American spending habits to
drive economy, and minimize job loss.
Bonus objective: clean the air.
Limitations: You have $1 billion to play with.
So we care about motivating consumers to spend more money. give them rebates.
It's not reasonable or meaningful to say the government should spend more now now now. It's a test pilot program. You can always increase the funding later. So "$1 billion" tag doesn't matter. It can always increase. Decreasing it is harder.
As it's limited funding, the program should be selective.
Who needs rebates:
1. poor people who hold onto old cars. They're dragging the economy down by not spending.
2. NOT rich people who trade cars in every 3 years. They already buy new cars and stimulate the economy.
Therefore target poor people with old cars.
So what kind of old cars to pick to limit the program further at this point:
1. uh, ones that suck gas and spew smoke. Save the planet!
2. NOT ones that don't spew smoke. Not as much of an environmental problem.
So I don't see a clear objection in Karl's post.
Karl just wants more old cars included, which current funding doesn't allow. And the funding can always increase later to expand the program. So it doesn't matter. I don't see the objection.
And Karl the monetary calculations in your post are all messed up, as 1487 mentioned. So we'll just have to ignore all the numbers you posted here for the mean time...
I think Karl needs to redefine his objections to the program...
By billt9
on July 30, 2009
04:23 PM
Remember we don't want to get Priuses off the road even if "they pollute more".
Pollution is BONUS objective.
PRIMARY objective is get consumers to spend. Which provides jobs.
So don't focus on secondary criterias, it must satisfy the main objective first.
By editor_karl
on July 30, 2009
06:22 PM
My numbers are not wrong. If 200,000 clunkers would have been retired between now and November 1 WITHOUT the program, than getting 250,000 off the road using $1 billion equates to getting only 50,000 INCREMENTAL sales from the program, or $20,000 a car.
I can say it again, slowly, if necessary...