Cash For Clunkers

Ohio is considering legislation that may move into the Federal realm and I’m not pleased about it.  It’s not just because I feel like only my state (California) should be setting the tone for the nation to follow, but because I feel like it is a bad, short-sighted law. 

Commonly known as “Cash For Clunkers,” the bill basically makes an attempt to remove cars and trucks 8-years old or older from the roads and give the owners up to a $5000 voucher for a new car.  Sounds awesome, right?  I’d trade my Jetta in for $5 Grand in a heartbeat (especially since it is back in the shop again). 

The thinking goes like this:
1. New cars are more fuel efficient.
2. New cars put out fewer pollutants.
3. New cars are safer.
4. The automotive industry is in the tank and we need to shore up some sales (we’ll get into this one later).
5. This is good for the environment, the economy and world peace.

Here’s the thing, much like gun buyback programs, it just won’t work.  In the gun buy back program, it is never the Mac 10 that gets turned in, it is the rusty 16-gauge that no one was using anyway.  This brings me to my first point.

Only worthless cars will be turned in.  My guess is that mechanics will see a small boon in fixing up lawn ornaments just enough so that they can be driven to the government lot to be turned in for cash.  While some might turn in their daily drivers for an updated model with newer luxuries that have given out in their current car like air conditioning, proper alignment and upholstery that fully covers the springs, the majority are not doing so with the idea of fuel economy savings in mind.

It discriminates against low income individuals.  Let’s face it, if you’re poor, you’re not looking at buying a new car.  Oh sure, you look at new cars, but you’re still driving a ’87 Sentra.  Want to know why?  Because you can’t afford the monthly payments!  Sure, the monthly payment won’t be as much with 5 G’s down, but it’s still something that will be pulling at your already thin standard of living.  People who own jalopies typically look to replace them with other used clunkers.

It sets a price floor for used cars.  Now, with a $5000 government buyout of your used car (supposing that this program is permanent), when your car gets to be over 8 years old and starts to give you the slightest problem, you can take it to the government lot and trade it in toward the purchase of a new car.  Who in their right mind would keep throwing money into a used car that you don’t even like anymore when the government is offering more cash than the dealer on a trade-in?  This effectively removes the supply of used cars costing less than $5000.  Granted, you and I, okay, maybe just you may not be in the market for sub-$5000 cars, but there are a lot of people who are; low-income workers, teenagers, college students, LeMons racers, red-heads with exorbitant credit card debt; the list goes on.  This program removes these vehicles from the pool of vehicles on the market, thereby preventing freedom of mobility. Don’t start with that public transit nonsense either.  You know as well as I do that getting around LA without a car is difficult at best, dangerous at worst.

It hurts small businesses.  The plan for the cars turned in is to crush them into adorable cubes and bury them in the ground.  This method effectively eliminates all salvageable parts from the car around which an entire industry of small businesses has grown.  Mechanics depend on older cars that require periodic service to make their living.  Without the parts available from these salvageable cars, they have no supply of goods, causing prices to rise on a segment of the population that is very cost conscious.

It is ambiguous.  The law, as I’ve read it, is meant to spur sales of cars from the not-so-Big 3 by offering up to $5000 for cars assembled in the North America and $4000 for vehicles not assembled in North America.  Does that mean the maker or the car?  Would a Chevy Aveo that is designed and built in South Korea get more or less of a voucher than a Honda Odyssey that is designed and built in the US?  Also, does “North America” include Mexico and Canada where Ford, GM and Chrysler manufacture a large percentage of their wares?  Does that include VW’s built in Mexico?  I’m confused as to what the government is saying I can buy.

It is actually bad for the environment.  I’m not concerned about the crushing of the cars and burying them.  I’m sure that they’ll be drained of their precious bodily fluids prior to the sealing of their fate.  There are definitely benefits to driving a vehicle that gets better fuel economy and pollutes less, but there needs to be an examination of the cumulative effect.  New vehicles cost resources such as barrels and barrels of petroleum before they even roll off the line.  All the plastics and rubber have to come from somewhere.  In a car that’s already on the road, those are sunk costs. 

It is bad for the economy.  In a nation where we have been swallowed by our debt and are now seeing the results of it, do we really need another program that puts us further into the red?  Do we need to trade in perfectly good, well-running cars and trucks that are paid for (if your car is over 8 years old and not paid for, you need to work out something) to receive the shinier model with five year’s worth of payments trailing behind it? 

Overall, the program might pull some of the worst offenders off the roads, but it will likely end up being a windfall for a few owners of crap cans.  I would likely take advantage of it.  However, the bill itself is short-sighted and does not take into account the high level of complexity within the market as well as ignoring the fundamental reason we’re in this depression recession.  We hate to wait, so we load up on things we can’t afford.

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One thought on “Cash For Clunkers

  1. wow!!
    you hit it right on the head

    the moral is, wheneveer the goverenment intervenes in the economy or to stimulate an indiustry,
    the government always does more harm than good

    still I will trade in my 19 year old perfect condition car for a brand new on because after the $8,000 Obama is offering today I can get a brand new car for $11,000 to $12,000

    Gee? Is that too good to be true?

    Do you think GM and F will raise prices on new cars and eliminate anll the cash back incentives so that a Taurus that I could have gotten yesterday for

    MSRP $22,500
    Cash back 2,500
    trade in 3,500
    Negotiation/ 2,000

    March 22, 2009 14,500

    After Cash for Clunkers
    MSRP $22,500
    clunker 6,000

    April 1, 2009 16,500

    So I will pay $2,000 more for the car plus $6,000 more in taxes

    And my taxes will go up to pay the $6,000 to Ford

    Way to go, food stamp baby President

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