Cash for Clunkers

POSTED BY: AnthonyT
UPDATED: Sunday, October 2, 2011 23:29
VIEWED: 4647
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ANTHONYT

Tuesday, September 20, 2011 8:06 PM

"Whats "inexpensive"? To Joe Blow, inexpensive means a 500 dollar car. To Bill Gates, its a 500000 car."

Hello,

Cars are available in my area in the 500-2000 dollar range. Of course, you get what you pay for with such vehicles, as you always have. They generally have multiple mechanical faults and leak multiple fluids and possibly burn some oil. They are a temporary solution to a permanent problem. All the cars I ever owned in Florida were all of this type. None of them cost more than two thousand dollars, and most of them hovered around 1000. Back then, I had a mechanic named Pepe who would perform triage on my car every few months, repairing or replacing the most defective systems to keep it running just a little longer. "Pepe, I've got 200 dollars. What do I absolutely need to fix to make it through the next 30 days?"

Anyhow, such cars still exist where I live, but Pepe is gone, so I invest a lot more in my vehicles now.

You never answered my question. If the program had not required a trade-in, would you have considered it more successful?

"Much of it comes from the real belief that this government was trying to clear the market of "gas-guzzler" cars, to make way for hybrids and green energy-tech ones. Even if they were overpriced. Or out of the reach of most Americans...
But hey, PROGRESS must be FORCED."

I'm not entirely sure how anyone was forced to buy an overpriced car by this program. As far as I am aware, it was entirely optional with no penalty for not participating.

"Well, for one thing, it urged people to get rid of cars which were capable of giving them reasonable transportation, and trading in for cars which were more expensive than they would have likely bought on their own. Once all the extra fees were tacked on, along w/ higher insurance and cost of operation ... it amounted to a colossal boondoggle."

Hello Raptor, is it your feeling that the program encouraged people to get in over their heads?

"A worthless waste of tax payer money, as is the case with much of what this administration has given us."

One of the things I noted about the program was that it did create actual consumer activity at car dealerships. (Unlike many of the other stimulus programs, which did not seem to do anything I could perceive.) It was this activity that made me feel that the program stood out as an unusual success of the effort. It seemed to succeed in 'stimulating' activity.

--Anthony


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"In every war, the state enacts a tax of freedom upon the citizenry. The unspoken promise is that the tax shall be revoked at war's end. Endless war holds no such promise. Hence, Eternal War is Eternal Slavery." --Admiral Robert J. Henner

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WULFENSTAR

Tuesday, September 20, 2011 8:12 PM

In the end, it was a failure. Like every other time the government tried to get involved in the free-market. But this time, it had an even more ominous overtone...

"We want to get rid of these evil environment-destroying cars... so here you poor people... TAKE our handout... hehe.. take our cash... we will give you a slave collar (oops) I mean, a car-payment option... on this brand new vehicle... look.. it gets xyz mpg... doesnt that sound great? hehehe Here, give us your old cars and you can have this pretty new one!"



"Hope is a good thing, maybe the best of things, and no good thing ever dies"

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NIKI2

Tuesday, September 20, 2011 8:13 PM

Here is Time's estimate of whether it was a success or failure:

Quote:

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Was the cash-for-clunkers program a success?

The short answer is yes. The program accomplished what it was set out to do, which was to get consumers back into the showrooms and to jump-start new-vehicle sales.

With some creative marketing and wheeling and dealing, dealers were also evidently able to convert many nonqualifying shoppers into the buyers of other new or used cars, a trend that created a sizable positive impact on sales as an indirect consequence of the program.

On the other hand, the clunker program was overly complicated, a nightmare to manage for dealers and difficult to understand for consumers. I would give the pure sales impact of the program an A and the administration of the program a D.

In the end, how many cars were sold through the program?

The official total sales that were directly because of the program will be right around 700,000 units. The average incentive — based on the most recent data available — was around $4,200. If we simply divide $3 billion by $4,200, we get about 714,000 units. The original forecast for 250,000 units was based on the initial $1 billion budget for the program.

Who benefited from the program?

From the manufacturers' perspective, everybody except for the luxury carmakers. Hyundai, Kia, Toyota, Honda, Nissan, as well as Ford and GM's small-car lineups all experienced sizable sales increases. The perfect vehicle for the program was the sub-$20K midsize compact car. You will have a tough time finding any inventory that fits that description in most dealer lots today.

More importantly, the program was a lifeline thrown at severely cash-strapped dealers. Sales were up. So were the profits. Consumers tend to drop their guards when there are big incentives, assuming that they will get great deals no matter what. As the clunker sales reached a fevered pitch, I think it's fair to say that the deals got much stingier. Many shoppers could have gotten better deals if they had done their homework before going to the dealership.

How far will the economic stimulus from the program spread?

The economic impact of the program is significant but short-lived. If we assume an average selling price of $25,000 for the program, and total unit sales of 700,000, the cash-for-clunkers program generated at least $17.5 billion of economic activity, not including incremental sales of additional products, such as extended warranties, alarm systems and financing revenue for the dealerships — as well as roughly $875 million in sales-tax revenue for state governments. When we add in the fiscal multiplier effect, the net impact of the program was easily north of $25 billion — if not much higher. However, the impact also has a short life expectancy. Once the program is over, the impact is pretty much over as well. It will be the next challenge for manufacturers as well as dealers to try to figure out a way to ride the program's coattails.
.....
Some dealers thought credit [worthiness] could be an issue, but customers cashing in on the program seemed to have no trouble finding financing. What happened?

For one thing, the CFC incentive was used as all or part of the consumers' down payment, automatically increasing loan-approval rates — the bigger the down payment, the higher the approval rates for car loans, everything else being equal. The $4,500 incentive sometimes was doubled by manufacturer incentives. Even if you have less-than-perfect credit, if you put $9,000 down on a $25,000 vehicle, you have a good chance of getting approved. We also saw the captive finance companies becoming more flexible during the promotion in their approvals. http://www.time.com/time/business/article/0,8599,1918692,00.html

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