Saturday, August 8, 2009

Cash For Clunkers (I Don't Think So)

Cash for Clunkers? aka CARS, aka Consumer Assistance to Recycle and Save. I don’t think so. I know. I know. “It’s a done deal, so what’s your beef ?” you’re asking. Well, the reason I’m spouting off is just to make a point that I think needs to be made, and that point is: WE’RE SPENDING TOO MUCH MONEY FOR THINGS WE DON’T NEED AND CAN’T AFFORD !

As a matter of full disclosure, I must say that I have long held the belief that the smartest thing the public could do in regard to saving tax dollars would be to just send the Congress home when they show up in the fall. Not just this year, but EVERY year. We already have enough laws and we don’t HAVE any money to spend, so just meet them at the capitol steps, shake their hands, congratulate them on a great campaign, hand them the pay check and send them back to the various states. That would solve a lot if not all of our money problems.

Back to Cash for Clunkers: The original purpose of the legislation was simply to provide a stimulus for automobile dealers. (undoubtedly the authors have some acquaintances in their home districts) Only later were benefit to the economy and the environment mentioned. The House of Representatives approved $4 BILLION (that’s a 4 with nine zeroes behind it) and the Senate cut it down to $1 BILLION. The program went into effect in late July, and by early August was in danger of running out of money. BUT….. at the last minute, the Senate approved additional funding in the amount of $2 BILLION. For a total of THREE BILLION dollars.

This program has been touted as both an enormous success, and a huge boondoggle. Let’s just us take a look at the numbers. To start with, it’s a temporary program…. Or that’s how it seems….. I mean they only appropriated a limited amount of money. And now they think the funding will last through Labor Day. So to start things off they had to develop the computer software and hire staff to process 750,000 applications in a period of five weeks where none existed before. Okay. No problem. There’s a common belief that federal employees just sit on their fanny’s with not much productive work to do most of the time anyway. But what will these employees be doing in September after the funding for the program runs out? After tens of MILLIONS of dollars have been spent building the infrastructure to administer this program, what will become of it? It’s a valid

August car sales in 2007 were about 1.48M. Sales in 2008 were down to 1.25M. It’s reasonable to expect that due to the state of the economy in general, August 2009 sales would have dipped below 1M units. It will be interesting to see where the numbers turn up. Indications are that sales are a way up. Many dealers have been caught flat footed and don’t have the inventory of qualifying vehicles to meet the demand.

And, here it is the end of the model year. Many buyers wait till this time of year to buy a new care so they can take advantage of dealers wanting to clear “last years” inventory to make room for the new models (which ironically won’t be offered in this program). Car manufacturers know that this is a “one shot” deal, and so they may shuffle units around, but the program will have zero effect on production. Not one unit will be produced in response to this program.

Now let’s touch on the environmental aspects of the program. Some will say (half heartedly) that removing the gas guzzlers from the roads reduces pollution. And it’s hard to argue with that however, it’s a matter of degree. There are an estimated 250 Million cars on American highways. If 750,000 cars are sold under the Cash For Clunkers program, it will result in a replacement of 3/10ths of 1 percent (0.003) of the vehicles on the road which will result in an incalculably small reduction in any type of pollution you care to be concerned about. However, the new, fuel efficient car will have to be produced and THAT will “cost” more energy than keeping and using the old one.

To summarize: A lot (perhaps most) of the participants in the CARS program were going to buy a vehicle anyway. They got a $4,000 windfall. Those that were lured in by the promise of “free money”….. got a payment book. We constantly hear that Americans have overextended themselves. We’re living beyond our means. That we consume more than our share, more than we need….. and now the federal government is promoting a program that encourages families to borrow money to buy something that they really don’t need. So consumers don’t benefit (they had transportation before, but now they have transportation AND a payment) and the environment doesn’t benefit because the program is so miniscule, and manufacturing doesn’t benefit because the program only eats up existing inventory. The only beneficiaries are the car dealers….. which was the author’s original intention.

Let’s call it what it is. Some congressmen introduced some legislation to help their rich friends and it worked. Now we’ve paid 10s of BILLIONS of dollars to bail out the car manufactures, and now we’re paying BILLIONS more to bail out the car dealers.

And that’s what an average guy thinks.

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