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A Clunker of an Idea

August 3, 2009

My loyal reader (Hi, Mom, yes, I combed my hair this morning) noticed I was out most of last week.  Honestly?  I had a choice in the morning of hiking Camelback Mountain in Phoenix or going into the office and blogging.  You saw the result.

Anyway, I missed the opportunity to heap scorn and abuse on the Cash for Clunkers program… or so I thought.  I’ll let Jeremy Anwyl from WSJ pick it up from here:

First, it’s not clear that cash for clunkers actually increased sales. Edmunds.com noted recently that over 100,000 buyers put their purchases on hold waiting for the program to launch…

Secondly, on July 27, Edmunds.com published an analysis showing that in any given month 60,000 to 70,000 “clunker-like” deals happen with no government program in place. The 200,000-plus deals the government was originally prepared to fund through the program’s Nov. 1 end date were about the “natural” clunker trade-in rate.

Ah, so the government is potentially paying money to fund what already would have happened, and depressed sales to start the process.  Let’s not forget that these are perfectly good cars for the most part, and that they can’t be resold as used.  So dealers are actually losing on both sides.  Oh, the dealers have to keep the cars somewhere until they’re junked.  Oh, this depresses the used market which would be a good alternative for people who can’t afford a new car…

There is also an ironic unintended consequence. Car companies have cut the number of vehicles coming off their assembly lines in response to the recession, which is leading to spot shortages. This is particularly the case for fuel-efficient models the program was suppose to encourage consumers to buy. As prices for these autos rise, buyers will inevitably use their cash-for-clunker dollars to buy less-efficient models and thus crush one of the touted environmental benefits of the program.

Woo hoo!  I can’t buy the car I want, so I’ll buy any old car on the lot.  I get money!  Oh, I still have to take out a loan instead of having what was likely a nicely-running, paid-off car.

So essentially, the government is allowing people to take money from banks (government supported) to buy a (government owned in many cases)  car that they didn’t need, or would have bought anyway, and it’s bad for the market in the end.

I’m truly glad this one fell apart so fast, because I would have missed not being able to write on it at least once.

By the way, there are a couple nice Green Room posts on this.

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