Tuesday, August 4, 2009

More on Clunker Cash....

Right-wingnut naysaying USA Today weighs in :

The so-called "cash for clunkers" program is off to such a fast start that its $1 billion allotment is almost gone in just one week of operation. The House of Representatives quickly allocated another $2 billion Friday before leaving town for its August recess. A somewhat more robust debate is expected in the Senate this week.

Could it be that in this program — which entices car buyers with credits of up to $4,500 to trade in their old gas guzzlers — the government has actually devised a smart, clever stimulus program?

In a word, no.

From its outset cash for clunkers has been more about rewarding two politically powerful industries — automakers and auto dealers — than about promoting energy efficiency or juicing the economy.

As a way to improve mileage, the program has always been a farce. Car buyers would qualify for a $3,500 credit with trade-ins that net just four additional miles per gallon. With 10 additional mpg, they'd get $4,500. (For light trucks and SUVs the numbers are even smaller: two and five.) Since all trade-ins must get 18 miles per gallon or worse, it provides no incentive whatsoever to buy any cars getting greater than 28 miles per gallon, because that is a segment of the market where the foreign makers are strong.

As economic stimulus the program is bogus as well. The money allocated is enough to generate about 250,000 trade-ins. While that may seem like a lot, about 200,000 would have happened anyway industry experts say.If taxpayers are spending $1 billion for about 50,000 additional car purchases that comes to about $20,000 per car.

In theory, the first allocation clears out all of the people who would have traded in anyway, so any additional money could be more stimulative to the economy. That may be so. But if the best that could be said for spending another billion or two is that it won't be wasted like the first billion, it makes for a pretty weak argument.

So far the program has actually been de-stimulative to the economy. That's because people in the market have stalled, in some cases since February when the idea was first floated, waiting to take advantage of the sweet deal from the taxpayer.

Now, with buyers pouring into showrooms, it has created an enormous spike in demand, stretching the available inventory and removing the need for dealers to offer even the most routine of incentives.

Cash for clunkers may be good for dealers and good for the Big Three. But for the taxpayer it is little more than a clunker — one with no trade-in value at all.

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Radley Balko (Reason / The Agitator) has an interesting formula to describe the energy savings farce more clearly :

There’s also the laughable idea that the government is ordering the destruction of tens of thousands of used automobiles it paid people thousands of dollars to exchange . . . for new cars that may get no more than an added four miles per gallon. And all in the name of saving energy....

...the government’s energy savings equation looks something like this:

(All of the energy that went into making the old car) + (The energy it will take to destroy it) + (All of the energy it took to make the new car) + ($3,500) = (less than an extra 4 miles per gallon!)

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Ron Paul on How Cash for Clunkers Hurts the Poor

1 comment:

Kilroy said...

"Now, with buyers pouring into showrooms, it has created an enormous spike in demand, stretching the available inventory and removing the need for dealers to offer even the most routine of incentives."

I agree! In May 2008 we purchased a new Ford Fusion and received $3000.00 rebate and 0% financing. Also, dealer gave me I believe 1200.00 for a 1997 jeep with 145,000 miles. So there is $4200.00towards purchase of new car. Wouldn't it be great if Ford gave that $3000.00 plus the $4500.00 Cash for Clunkers.

This is the time of the year auto makers cut prices on outstanding inventories to may way for the new model year aka clearance sale. So when the Cash for Clunkers expires the auto makers will be back to the old cash rebates.

I just checked online and Ford is only offering $1500.00 rebate on 2009 Fusion.