British Newspaper Says Cash for Clunkers is Flawed

They make you register to read the article.

They make a good point, this contraction in car-buying is probably pretty permanent and it's going to hurt sooner or later. CARS has probably been one of the most direct and effective uses of government-funded economic stimulus that I've ever seen. Compared to the farce that was/is TARP, I don't see a whole lot to get up in arms about actually.

Clarkma5,

You really don't see anything to get up in arms about? I certainly do.

While I approve of improving fuel efficiency, I think this plan is in general a let down.

1) It's aimed at cars with 18mpg or less. That means that if you were previously driving a fuel efficient vehicle, you aren't eligable to participate. From a greenies perspective, this means that you're in effect punishing those who were willing to make the sacrifice in the past to drive something efficient, and rewarding those who drove the big gas guzzlers.

2) It requires the destruction of the old cars. As these are sub $4500 cars, you're destroying a large amount of vehicles that the poor could afford. Being that in much of America, a car is required in order to obtain employment, you're making it harder for them to earn a living. On top of that, because the pool of sub-$4500 cars will shrink, those that remain will become more costly and difficult to find, causing further hardships on the poor.

3) A large part of why the global economy has undergone such turmoil in recent years is because many people and companies have been spending beyond their limits. This program encourages those who quality (who will primarily be the poor) to invest in a new vehicle. And it could very easily be that they can't afford a new vehicle, but that the opportunity is too good for them to pass up.

4) The government is taking my tax money from my earnings, and giving it to someone else to buy a car. If that doesn't strike you as socialist policy and redistribution of wealth, I don't know what will.

heffling,
While i agree with number 4 I'd rather see my tax dollars go towards something where the public gets something out of it rather than billions of bail out dollars that did little if anything at least some people are getting cars out of this.

The rest of your statements are useless to me though . . . cars for the poor? Used car lots are still just as full of cheap cars nothing will change that . . . People spending more than they can afford isn't the whole problem it's whatever bank approves them for a loan they can't afford the payment on. I mean they should be held accountable ultimately for committing to something they can't afford but banks are a key part of that potential problem.Punishing Greenies . . . then maybe i'm being punished because I already made the sacrifice of buying a fuel efficient vehicle? No it's just a program you don't qualify for . . . I'm white I can't call my company a Minority Owned Business am I being punished? (sometimes it feels like it) but no I just don't qualify . . .

But hey, at least we are giving the scrap metal from these clunkers to China. Gotta pay them back all of that money our government is borrowing somehow I suppose.

heffling, there are still PLENTY of cars for the poor. Even if every car eligible for the program is destroyed, that still leaves all the Civics, Corollas and other cars that get better than 18 mpg. I agree with your point #4, though.

heffling, there are still plenty of cars for the poor. Even if every vehicle that qualifies for the program is destroyed, there will still be plenty of cheap cars that get better than 18 mpg on the road. I agree with #4, though.

civicguy3,

And what do you think will happen to prices of those used cars over the long-term after a program like CARS is implemented? The answer is that prices will go up (or at least stay the same) while the value of the money in your pocket goes down.

CARS hurts the poor because it spends money that was newly printed (which, in case you don't know, decreases the value of the dollar) and also destroys product which effects supply which raises prices.

It's simple supply and demand. CARS is a horrible program because of this. Saying there are "plenty of Civic's and Corolla's" on the road to buy is a blatant cop out. I'm sure those that are in a financially unfortunate position appreciate you telling them that.

According to the government website, a 1986 Ford Crown Vic is NOT a clunker, but a 2001 Chevy Tahoe IS a clunker. This bill should be based on pollution generated, not on MPG. Rustbuckets blowing blue smoke out of their tailpipes are more than likely EXEMPT from Cash for Clunkers program.

If this is to lessen the impact on the environment, then it is a failure.

If this is to "lessen our dependence on foreign oil" and to jump-start the economy by enticing people to buy a car they don't really need anyway, then the program is perfect.

altimadude,

Actually, some (like myself) would argue otherwise on your last point...

heffling:

1) That's a very microscopic way of viewing it; the macroscopic view makes sense: they're using government funds to take high-emissions, gas-guzzling vehicles (which also happen to often be some of the least safe vehicles on the road) out of the national private car fleet. That has pretty widespread benefits.

2) I agree, I don't like the destruction of old cars clause of CARS, it's probably my least favorite part of it. The logic is understandable, they don't want to keep older cars on the road when their priority is to get rid of them (see #1) but it is a waste of otherwise usable resources.

3) I've heard this argument against CARS before and I'll tell you why it doesn't make sense. No matter what something costs, there's going to be people buying it who can very comfortably afford it, there are people who will have to finance but will pay it off OK, and there will be a few people who stretch themselves too far (or have something bad happen to them) and end up defaulting on their loans. That's true whether you give them a $4500 rebate or not, it's just that with the $4500 rebate you're giving the oppurtunity to successfully buy a car (or mess it up) to a lower class of people. Also, since the $4500 is a rebate that you get after you buy the car, and not a discount, you have to be able to afford the car you're buying at its full price first, thus thinning out more people at risk of being unable to pay for these new cars with the government discount. And of course my last point is that, since the economic downturn, it's just been generally harder to get credit which also puts less people in a position where they might get in over their heads.

4) That's a bit of a knee-jerk argument. Our tax dollars pay for roads that other people will drive on, for schools that will teach other people's children, etc. and all sorts of other socialist, wealth-redistributing functions that are, IMO, entirely within the realm of reason. CARS does not address a need as basic or universal, I admit, but a functional economy does benefit us all, and I repeat that I believe that CARS has been one of the most direct and effective applications of economic stimulus in history, which kinda forces me to give it a pass, especially when the size of the program is relatively small.

flicmod-- Sorry, there was a bit of sarcasm in that last point that didn't come through very well. Selling Colbalts and Calibers aren't going to stimulate the industry much.

On the whole, the program sounds good, has a catchy phrase, but it's a failure.

This program makes a farce of personal responsibility and wise governance. Saying it is less repugnant than the bank bailout is not a good argument, because we are stuck with a system that brought us both. Two very large interest groups have made a succesful grab of taxpayer money. Not because it was fair, not because it was the best, but because these groups have more influence over elected representatives than you do.

altimadude,

My bad.

Flic, this is intended to be a short-term program for a very limited audience. Imagine the resale value on an old clunker that doesn't qualify.

It doesn't matter how short- or long-term the program is. You can't reverse the action of destroying a vehicle. If 250K vehicles are taken out of existence it directly effects the price of used vehicles over time. And that goes for that old clunker that doesn't qualify as well.

All this hurts the poor. And the fact that it's "for a very limited audience" is also a misallocation of the taxpayers' money.

As always, Flic, I enjoy the argument.

From an environmental perspective, this program is a complete farce. Saving a couple mpg is certainly not worth the footprint of buying a completely new car. In that respect, the program is very ungreen.

On the other hand, the ~$15 (ballpark figure) each of us have contributed for this one instance reaps a few benefits:
1. Potential savings at the pump (250K cars averaging 5mpg higher over 12K/yr can reduce our oil dependency)
2. Fewer SUVs and trucks on the road can reduce our insurance premiums
3. Safer vehicles can reduce our insurance premiums
4. Fewer emissions can reduce our health care costs in large cities
5. Lower annual repair costs

If those few items alone don't cover your $15 contribution, there's always other added benefits:
1. Fewer breakdowns (and breakdown-related traffic congestion)
2. Cleaner air
3. Greater safety (particularly if you're driving an SUV)
4. Economic boom (with the potential of job creation)
Oh, and if you just happen to take part in the program, you save an additional $4,500 off the purchase of a new car.

Believe me, I entirely agree with you about gov intervention in the free market. I'm not convinced; however, that all car prices are suddenly going to shoot up in response to this program, though.

estreka,

I appreciate the argument, as well :-)

The dollars spent in the CARS program have come from millions of people all over the country and have now been allocated specifically for the auto industry. Otherwise, that same money would've been put to better use by the person that originally earned it because they can more properly identify their personal needs (and wants). The poor are the first that are hurt by this because they are the ones that have an emphasized focus on needs over wants. The next to be hurt will be the middle class due to the sudden surge of demand for new automobiles. Manufacturers will then raise their prices because demand has increased, creating more inflation.

The rise of used car prices will not be immediate. It will take time, but it will inevitably happen due to the sudden loss of cars on the market. Not only that, but the program creates that false demand for new cars.

Ultimately, it comes down to misallocation of resources; in this case, money. But on a macro-scale, resources are also being diverted in other ways. Steel, plastic, wood, composite materials, manpower, healthcare, etc. These are being diverted from their natural paths into the auto industry that clearly does not need them. The case can be made that the volumes that the industry declares to maintain are actually extraordinarily high due to the incentives the government has already given to them. Factor in the wasted energy that's used by those companies to manufacture new cars (and the energy that was used to destroy the old ones) and you have an amazingly large diversion of mass resources into a single industry.

The problems are myriad, as you know. The program neither helps the environment (as you said) because of the new industry and wasted existing vehicles; it will NOT affect the economy the way everyone thinks it will because the long-term effects of this policy are destructive; it will not improve our health or safety (there is no proof of this, whatsoever); and it denies every person in the country the choice of what to do with his own dollar.

These programs bankrupt nations. Three billion dollars is a lot of moolah no matter how you slice it. This will lead our country to even further economic ruin. I think all of this far outweighs ANY positive of this program, if there even are any.

^ +1, flic.

"These programs bankrupt nations."

And we're headed down that cliff faster than we've ever gone before. At the risk of sounding doom and gloomish, we're so far in make-believe land with our fiat currency that we're not even paying for such programs with our tax dollars; nor those from future generations. We're paying for them with the money we have left after taxes, through its reduced value and purchasing power.

Flic, so you disagree with all the bennies I listed above?

Honestly, the individual taxpayer didn't contribute much to this program. Compared to corporate and industrial taxes, the individual tax composite is negligible. Even my initial estimate of $15 is probably an exaggeration.

$3B may seem like a lot of money, but spread out over 300M people and thousands of big-money corporations, it's actually a pretty small amount.

As far as the impact on used car prices, I think we're just going to have to agree to disagree. I find 250K cars to be an insufficient slice of pie. Now, if we were taking every car with poor mileage off the road, sure, I'd agree. I don't think 250K cars will fundamentally change the process of supply and demand.

In short, yes. I disagree with the benefits you've listed.

To put into perspective the number of cars we've taken off the road with this program, 250K is approximately 50% of the entire sales volume of Volkswagen NA last year. Imagine how many thousands of tons of steel, plastic, composite, wood, glass, etc. that those cars yielded. All wasted. All crushed and fed back into the system to be refined. And, as I've heard on an NPR report the other day, most of the non-ferrous metals will be sent to China to be sorted by hand and then sold back to the States to be used again. If that isn't wasteful, then I don't know what is.

I'm not sure where everyone gets that $3 billion isn't a large amount of money. Have we all been conditioned to think that the US Federal budget needs to be over $1 trillion every year? There was a time when our budget didn't even exceed $3 billion (1918), let alone double that number (1938). There's a thing that's called "nickel and diming to death", and it's exactly what we're doing here. Sure, $3 billion doesn't sound like a lot all by itself. But you consider the fact that there are 100 other programs with the same or bigger budgets than it has and that's quite a chunk of change. How many times/programs can we say "it's only $3 billion" before we realize that these are the programs that need to be cut?

So where do we draw the line? Do we actually NEED CARS? Do we need the multiple other programs that spend billions of dollars a year? Frankly, it's a cop out to say "Well, THEY'RE doing it over there! And it's only $3 billion". Anyone can say that. The cure for this problem is to simply stop spending so damned much. We can spend ourselves into oblivion if we wanted to. Where does it end? The small programs like this are where we need to target first.

Well, if you want to do a cost/benefit analysis, I'd be willing to bet C4C is certainly a lot higher up than many other programs.

Cost-cutting would be more effective in other areas, like, say, the TSA. In my opinion, the whole agency could be replaced by some security cameras and signs that say "We're watching you."

The F-22 is arguably a huge waste of taxpayer resources.

Medicare and Medicad thoroughly overpay. A simple audit process would eliminate huge overspending problems.

Many agencies monitor their own spending (like the Army Corp of Engineers), resulting in limitless budgets that just get tacked on to our deficit.

A lot of programs out there do the exact (or similar enough) same thing. Elimination of duplicity would greatly improve our financial well-being.

There's probably millions of examples of wasteful spending that are far worse than C4C. And with C4C, at least the general public gets a few arguable benefits.

@estreka, are you being facetious on some of your points?

While I think the TSA is yet another huge bureaucracy that by definition has a lot of waste and inefficiency, there have to be some security procedures enforced by people, so that other people won't try to blow up planes or hijack them and let's see...maybe fly them into buildings. I think this should never have been implemented as a government takeover of an industry, but now we do seem to be stuck with it.

Why is the F22 a waste of resources? It is part of our national defense.

I agree that there are many duplicated programs. Unfortunately far too many Congress people hinge their re-election chances and thus their careers on the amount of programs and spending they can bring home to their states and districts. And the people they supposedly represent either think that's a great thing that they think they're getting some of their tax dollars back (even though it costs them far, far more), or they don't pay attention, don't care, and would rather be in the dark about it all.

Here is where cwc1 and I will part ways.

estreka,

All the programs you've listed are gigantic money pits. The TSA has been proven to be oppressive, profiling, and a tool of a dictatorial governmental system. There are multiple videos on the internet showing how they limit peoples rights while flying. For instance, the Campaign for Liberty staff member that was arrested for carrying $4000 on his person which was from merchandise sales at a conference in St. Louis. This organization would best be dissolved and left in the hands of the airlines in order to protect their property (ie. jets, personnel, equipment, etc.).

The F-22 is a point where I would heavily disagree with much of America on. Not only is the F-22 unneeded (when was the last time we even had a threat of having dog-fights in combat), but it represents US Imperialism in the world. I won't get into much of my personal military philosophy, but I will say that the untold billions of dollars of R&D that we've spent on a joint-strike fighter (that will most likely never even come close to seeing the kind of combat that it was designed for) is already a huge waste of resources, let alone the mass production of them.

It's funny that you mention Medicare and Medicaid in contrast to CARS. CARS is nothing but economic Medicaid for the masses... and only a limited few of the masses at that. Just like the government dictates healthcare costs in Medicaid, they're dictating the selling costs of used cars. In this case, inflating prices to entice people to spend more on a new one. Which, might I add, will lead to even more inflation, as I've said. I view CARS as a sort of "Medicaid-lite". It serves the same purpose, though: to price-control commodities/services with taxpayer money in order to coerce people into spending more of their personal money. All so we can "fix the system". Hate to break it to all those politicians and bureaucrats, but no amount of spending will "fix the system".

It seems we all agree on the TSA.

The F-22 fits the exact same as the US's nuclear arsenal, namely deterrence. If no other country has a hope of competing with the US in a major conflict in the air, there's less incentive. My problem with the F-22 is the expense of it all and the fact that the DoD doesn't fly entire wings of combat aircraft at a time. We don't exactly use armadas of planes when fighting a war. We do individual missions which require a few planes at a time. Also, the JSF provides 90% of what the F-22 can for a substantial discount. The F-22 is an example of "kid in a candy store" shopping.

Medicare and Medicaid have 2 major issues. The first is administrative costs, or beauracrats taking a piece of the pie. The second is a lack of haggling, which we are arguing about now.

As far as new car prices are concerned, they were already set in stone before the program began. I haven't seen any $4500 price increases. As long as people continue to haggle prices, they should get excellent deals (for a new car price anyway).
For used cars, you're only impacting a small niche of vehicles, primarily SUVs. If you're poor and in need of a Suburban, yes, you might have difficulty finding a replacement for the one you already have. If you don't have the need for another Suburban (or Explorer, or whatever), this bill might push you toward a smaller, more economical vehiche that still satisfies your needs.

I can't disagree on the TSA or F-22 subjects.

New car dealers (or manufacturers) won't be jacking up prices by $4500. It'll be much smaller than that. Maybe as much as $1000, I'd say. But there's no real way of knowing this without it actually happening first. I think we all agree that the market forces are in effect no matter what kind of policies are put in place. One constant market force is supply and demand. Yes, this is used so often, but it's one of the most elementary and important economic principles. Companies will still raise prices if they know they have the reason to. And that reason comes from increased demand. By the government essentially spending our money for us (through the CARS program), this gives the auto companies reason to raise prices. Like I said, it won't be a gigantic increase (at least at first), but it is unnecessary given that we're in a depression right now where people should be saving money (which causes companies to lower prices because of decreased demand).

As far as "primarily SUV's", you're forgetting that three of the top 10 vehicles that have been traded in under CARS are minivans. I believe each of those three vans on the list came with 4-cyl options in the 90's, but regardless... the advent of crushing those vans directly affects families with more than two kids and cannot afford a new/newer vehicle. I know several people that still drive mid- to late-90's domestic vans around because they're so darn cheap and they need the extra passenger space. I can't disagree that less SUV's on the road would be a good thing (they obviously use more fuel, they're obviously less safe than a car, and they were obviously a fad that has faded), but there are unintended consequences of this program. Namely taking strictly plebian passenger vehicles off the road (that didn't get horrible mileage, either) that would have otherwise been a great car for low income families needing the room.

So, with all the programs out there that are intended to "help" the poor, we have CARS that is contrary to all of them. Regardless of what the government (or any of the pundits say), Washington is NOT concerned with actually helping the poor, only keeping them in poverty... or so I'm led to believe.

I disagree. If automakers jack up pricing on new cars, the vast majority of potential customers will run away (the majority being those without qualifying vehicles). No, I think market forces will keep prices down, if nothing else, simply because demand is at an all-time low. Additionally, given the short period of C4C (I don't expect a further extention of rebates) I doubt any long-term effects will apply. Even if the program were run long term, there are only so many qualifying vehicles out there.

You're right about the minivans, and probably vans in general. Their removal serves no purpose. That point is especially relevant given the limited availability of minivans in today's market.

Honestly, I don't think the gov cares either way about the poor. My view is that gov applies a cost analysis when determining what should and shouldn't happen when it comes to welfare. How strapped can they be without having to spend extra money of law enforcement, increased welfare costs, or losing their oh-so-important votes?