Car Guy
The Clunker Con
Uncle Obama’s shell game is mainly for losers.
Of course the “cash for clunkers” giveaway is popular. The government is paying people to buy cars — and subsidizing the “sale” of cars, thereby temporarily improving the fortunes of the auto industry.
But, is the program a success?
If the criterion is political, the answer would be yes — at least in the short term. Thousands of people have leapt into the breach to grab their handful of free government money. No surprise there. It’s not often that Uncle Sam gives average people serious cash as opposed to taking it out of their pockets. Only a fool would leave that Old Beast parked in the back yard to rot for another 10 years when all you have to do is break out the jumper cables and a can of ether and gimp it down to your local new car dealership and swap it out for $4,500 toward the purchase of a nice new ride.
Except, of course, it’s these same individuals who have been taxed up and down the streets to provide the revenue that Uncle Sam then generously returns a portion of via the “clunker credit.”
And, we’re grateful for this!
It also probably hasn’t occurred to the people trading in their “clunkers” for new cars that they are voluntarily signing up for a slew of new and higher taxes, too. By getting people out of paid-for and low-value older cars, the government knows it can extract a fortune in new sales and upticked personal property taxes.
Insurance companies are rubbing their hands together also, no doubt.
People of limited means trying to live within their means, on the other hand, are probably not. The pool of affordable transpo has just been reduced. Not just the total number of older cars — but also the availability of second-hand parts to keep the remaining still-operable older cars operable. Every car turned in under the clunker program must be “recycled” — that is, destroyed. This will exert additional cost-of-ownership pressure on the remaining older cars not crushed — and thus, on the people of limited means who depend on them to get around (and who are not interested in a $500 per month new car payment).
To paraphrase the Queen of the Bourbons: Let them take the bus!
Meanwhile, the car industry.
It is indeed moving cars again. But that is not quite the same thing as selling them. What is happening is the government giveaway is helping to clear out the stacked-up inventory of brand-new cars that have been collecting dust on dealer’s lots for months now. This gives the appearance of a recovery but once the giveaway goes away, so in all likelihood will the “recovery.” And since Uncle Obama can’t (we think) provide an endless 20 percent or so government-funded discount off the MSRP of every new car purchase, at some point, the rush to “buy” will be over.
Then we are back to where we were — only the government (meaning, us) is now $3 billion lighter ($1 billion plus the additional $2 billion recently approved to finance the giveaway).
It’s clever shell game, but ultimately, it’s still just a large-scale con that’s no different in principle from what you’d find going on in a Brooklyn back alley.
Nothing of real value has been added to the economy. Funds have merely been shifted and transferred. Taxpayers to taxpayers, taxpayer to car dealer, government to car dealer to car company.
Eventually, the music stops and the con is exposed.
About the Author
Eric Peters is an automotive columnist and author of Automotive Atrocities: The Cars You Love to Hate (Motor Books International) and a new book, Road Hogs.
Letter to the Editor View all comments (44) | Leave a comment
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drudge ette obama| 8.10.09 @ 6:38AM
My 1995 Nissan Maxima doesn't even qualify because its mileage (reformulated) indicates it goes about six inches more per mile than a "clunker". The Wall Street Journal had a great article about how ridiculous the qualification guidelines were determined.
Let's see..... government buys the auto industry, then offers rebates/discounts on new cars using money not in the auto company's budget, but the people's money. What other business operates like this? And stays in business?
Ben Rast | 8.10.09 @ 6:58AM
Nothing in Washington happens without somebody losing something.
To paraphrase the old truth about poker, take a look around Washington and spot the sucker. If you can't, you're it.
Lullabys, Legends and Lies| 8.10.09 @ 7:04AM
Personally?,.. I wouldn’t be able to look my neighbor in the eye again,.. if I took part in this scam!!,.. and Yes!!,.. my 1995,.. 200,000 mile,.. Full Size,.. CO2 spewing Car would qualify for “Cash for Clunkers”,.. and I could steal everybody’s money to get myself a new car,.. but I choose not to be a thief!!,.. and steal from my neighbors!!,.. I’m going to keep driving Old Betty?,.. until the doors fall off!!,.. that way I can still keep talking to my neighbor,.. although?,.. I never talk to them anyway.
chuck panarella| 8.10.09 @ 7:47AM
Even though my wife and i did not need a new car, 8000 dollars off the sticker on a small efficient jeep was too tempting.
My thought is that maybe instead of just handing over cash to the car companies like they did this year, maybe they should have done this earlier for every car bought.
Thanks, Chuck
kiwikit| 8.10.09 @ 8:04AM
People hate their insurance companies because their health insurance is expensive. . . I assume they hate their auto insurance companies for the same reason but does that make it a 'crisis?' Is BO going to provide that from 'big brother' as well? Wake up America!
Crusader| 8.10.09 @ 8:05AM
Chuck doesn't appear to get it.
Chuck, the point is:
1. Gubmint steals from (taxes) Chuck. Let's throw a number out there and say they took $10,000 of your hard-earned cash last year.
2. Gubmint now says, "We're gonna give you $4500 to buy a car." Well Chuck, just where do you think they GET that money? It is yours and mine and everyone else's TAX money. I.e. IT WAS OURS TO BEGIN WITH!!!!! (And you're still -$5500)
3. Hence the "redistribution."
Here's one for you Chuck, since this is all OUR tax money anyway, how come only those buying new weenie cars get the cash? Where's my $4500?
Robert Rosencrans| 8.10.09 @ 8:31AM
This program is a disaster in many ways.
Although there was a direct subsidy of one billion, soon to be 3 billion, the administrative costs are close to 5 billion. This is not efficiency.
The government will net about 60% of the salvage costs of the vehicles, about $1,000 on the average which will take the administrative cost for the program to just over 4 billion.
Ray LaHood announced that the DOT is going to hire contractors to process the vouchers. That cost is not included in the 4 billion above.
Sometime around September there will be a new model year that will go unnoticed. Future sales could actually plummet into the 8 million per year range, an economic disaster for the Obama administration.
Liberals need learn only one thing to be successful. No good deed goes unpunished. If they realized that they would get out of the good deed business.
I have a hunch they are about to also learn about the law of unintended consequences on this program.
danny| 8.10.09 @ 9:19AM
robert, my hunch is this bunch is not going to learn a thing on this program or any other of their fairytale, pie in the sky programs. wanna bet?
2Anglico| 8.10.09 @ 9:26AM
The seen benefit (slight uptick in car sales) is outweighed by the unseen-everyone paying
Federal Income Taxes (fewer and fewer every year) will have more taken from them. EXACTLY WHAT THE GOVERNMENT WANTS.
Becky| 8.10.09 @ 9:55AM
GM and Chrysler seem to be doing worse than Ford and the transplants.
I think the public is mad about the auto bailouts and the handling of bondholders, etc, but not mad enough to take advantage of government stupidity.
Car insurance is mandatory. That is why the insurance companies don't mind. New cars with loans require full coverage, not just PL/PD.
Don't you wish you had a business that people had to use by law? That is what insurance is.
I agree that they may be pulling sales from the future.
Something that puzzles me is that Michigan was on of the top states in turning in rebates. Michigan also has the nation's highest unemployment, and has been in a recession for years. Does this mean things will be getting better, or that Michigan will be seeing lots of car repos next year. One respected analyst expects Michigan's unemployment to go to 20% next year.
Michael G| 8.10.09 @ 10:40AM
Hey, Mr. President. I recall your statement of a few months ago that you were going to start looking for a $100 million in savings to help bring down the defict. How's that working for ya?
Stephen Hayes| 8.10.09 @ 10:42AM
I just paid about $1800 to keep my 1994 Toyota Tercel running a bit longer. Why? Because it has 290k miles on it, gets nearly 40 mpg still, and I won't have a car payments for at least another year -- and the insurance for liability only is cheaper. And besides, it's not a bad little car. And, I do need to help pay for Nancy's new jet fleet.
I appreciate the earlier thought about increased taxes on new cars. There will be sales tax, property tax, licensing, required insurances, extended warrantee options, etc. How much might that come to on a new purchase? You think maybe $4500? I haven't had a car payment in years, and I can wait another year or two -- and certainly until tax rates go up further so I can pay more.
This clunker program is fine for buyers with real clunkers right now, but it is the typical liberal bandaid. Meanwhile, the illness goes on untreated.
What is that great line from The Producers? Never use your own money.
Nyfarmer| 8.10.09 @ 11:17AM
The program is a very short term feel good program for a lucky few auto buyers. For the national fleet to be replaced every 20-22 years about 7-10 MILLION cars have to built every year. In an off year I would venture a guess that sales might be half that number. A catastrophe for auto builders no doubt. This program will move about 750 THOUSAND cars as currently funded. These cars may have been bought regardless and the program will still net the auto industry a dismal year BECAUSE THE TOTAL NUMBER OF CARS SOLD FOR THE YEAR WILL NOT RISE!!! I have not seen a decent critical analysis of the auto business in any of the msm outlets! This type of program has been tried in the dairy industry over the last 20 years to improve the pay price to farmers for milk to no effect. The government instituted a buyout--slaughtering milk cows to try to shrink supply (of milk)--the 'successful' bidding producer is paid for a year of milk production and the slaughter value of the animals. But wait there's more! This program was done only once by the government. Our corrupt co-op system picked up the standard by forming CWT (co-ops working together). Dairy producers pay into a fund $.10 for every hundred pounds of milk sold and periodically roll out a buyout when milk pay prices plummet. A buyout is currently underway to remove about 87,000 cows on 300+ farms nationwide. I do not anticipate a marked increase in my pay price for milk. The problems within the industry are far more complex for such a simple fix. (Investigate something called MPC's or milk protein concentrates for starters! You may not allow your child a pizza again.) So the next step for the auto industry will be to collect a 'fee' on every auto sale and periodically roll out feel good payment to the lucky few!
JeffW| 8.10.09 @ 11:49AM
I couldn't agree more and have felt the exact same way for weeks! This is just a shell game to help the auto industries that got bailed out in the first place, clear their excess inventory. It's another form of bailout only this one backfired as well as most of the auto's being purchased are either Ford or foreign. Not a big help to GM or Chrysler.
Roy| 8.10.09 @ 12:08PM
Crusader: It's not OUR tax money, it's YOUR tax money. Lots of people don't pay taxes, so what do they care?
Ron LaSalle | 8.10.09 @ 1:10PM
the state of NY charges tax of the new vehicle at sticker price. The rebates and clunker monies are taxed. so they tax us to give us money then tax us again hmmmm seems strange to me
PolishKnight| 8.10.09 @ 1:50PM
There's one unintended consequence the author left out: Whenever a new subsidy is announced or extended, the market shifts to deal with the change. In other words, education and auto makers, seeing that more of their clients have more money from the state, cancel any discounts or increases prices to benefit themselves. It's about what the market will bear.
In addition, this program also didn't require people to buy domestic GM cars meaning that ironically it probably increased Toyota sales and created a whole new group of consumers that got out of American clunkers and into foreign cars...
Tejas Forever| 8.10.09 @ 1:53PM
I bought another vehicle this last weekend. A 3/4 ton turbo diesel truck. It should increase my "carbon footprint" nicely, and vehicles of this class do not qualify for the Obamanation monetary payout, plus, my old "clunker" 3/4 ton truck I have had for years, does not qualify either, because it is too old, not that I would send it to its doom at the hands of the idiots destroying perfectly good cars...
This place is almost surreal anymore...
Michigan and Me| 8.10.09 @ 3:40PM
We're paying taxes to build cars, buy cars, and destroy cars. This county is also going to learn the hard way the meaning of opportunity cost. The money wasted on trashing usable vehicles could have been better spent on fixing the godawful roads in Michigan.
Dan| 8.10.09 @ 3:48PM
Lets see, I should turn in my paid for 10 year old pickup with 34000 miles on it. Buy a new one, finance about 15000.00 or more, pay increased insurance etc. Doesn't make any sense to me.
I thought the idea was to reduce consumer debt.
Marc Jeric| 8.10.09 @ 4:33PM
I read how popular is this 3 billion dollars program for junking those old clunkers in favor of new, environmentally sound cars, and how it is giving a big boost to the moribund car industry. Following the same thought - how about reviving the moribund housing industry? I have this idea (which I pass freely to our Congress) about burning say 200,000 older houses and then giving $100,000 to the burned-out families toward the purchase of a new house, environmentally sound and green, of course. Wouldn't that give a tremendous boost to our housing industry! This new program would also reduce our carbon footprint. And it would cost only $20 billion, about a one-fortieth of the present stimulus bill. Both amounts, for clunkers and old houses, then would cost a total of $23 billion, to be paid by the yet unborn future taxpayers - but then who cares - the crisis is now. This economic principle was explained some 200 years ago by the French economist Bastiat; but why would our Congress bother with reading those ancient texts?
Mark| 8.10.09 @ 4:45PM
Crusader, While I agree with your points the fact of the matter is that the goverment is going to spend the money whether you get involved or not. So why shouldn't those that have foot the bill take advantage of it.
Tony in Central PA| 8.10.09 @ 5:15PM
Last week, after steeling myself, I watched several minutes of Rachel Maddow on MSNBC. In her smugly sarcastic way, she pointed out the folly of people wanting to end the " Cash for Clunkers " program now that its a success. This got me thinking, how does a libeeral define " success ".
Well, for one thing, it always involves enlarging the government. It also appears to involve the spending and increased collection of tax money. Wealth transference from taxpayers to recipients also seems to be a key identifier of liberal success. I'd say the only part that fails the " success " test at this point is that this program has not yet become an entitlement. But don't worry, I'm sure there's an effort in the works.
suddencall| 8.10.09 @ 5:16PM
These congress and senate mindless wonders are the same ones who wanted to hang Bernie Maddowfor his ponsie scheme.Now here they are doing the same thing.How will we have honest society with the likes of them setting an example?
Sidney Anderson| 8.10.09 @ 5:59PM
Is China getting the scrapped metal? I have seen a big increase in scrap metal dealers in North Georgia.People are combing the woods for old cars and metal.
FearTheVoices| 8.10.09 @ 7:08PM
Well put! Has anyone asked what happens outside of dealerships sales offices? Will the new car give away ultimately end up costing more jobs in the parts and service departments as repairs go down? Will the corner repair shop, tire store, parts store end up laying people off or closing their doors?
This entire program amounts to little else than smoke in mirrors. It's equal to drinking an energy drink for a boost; but your mission will last 6 months, not five hours. In the end, we are going to be returning right back to start, but not collecting $200 as we do so.
It's such a good thing that we have put the failed policies of the past to rest, in favor of the newly improved failed policies of today.
Kell | 8.10.09 @ 7:19PM
But, but, $4,500 is only, at most, about ten months of payments, not counting insurance, so I'd still have at least two years of payments to go, plus more insurance, and even if my gas bill were cut in half, it still would only cover maybe another monthly payment a year, so how am I supposed to afford this when I'm already living with a 17% pay cut? This doesn't make any sense!..oh, right. Obama...
Ted| 8.10.09 @ 11:41PM
You people don't get. After Obama's election, we don't have to worry about putting gas into those cars; or paying our mortgages either.
jhenry | 8.17.09 @ 5:43AM
You donot need actual vouchers or coupons to partipate in this program. All dealers are required and government will
reimburse the fees for the clunkers
Jhenry
Blogger
www.cashforclunkersfacts.info
http://www.cashforclunkersfacts.info
Pingback| 10.18.09 @ 11:33PM
JoelFoner.com » 2009-10-20 We Are The Network: “Economic Recovery… But What Is The Ne links to this page. Here’s an excerpt: