Framing the Dialogue

Cash For Clunkers

I saw the following headline in Pittsburgh’s supposedly more conservative newspaper this morning:

‘Green’ rebates jump-start auto sales

Unless you have been hiding in a box, the news is flush all of a sudden with news of this program where you can get up to a $4,500 rebate when you trade in your clunker for a newer and more fuel efficient model.  I have heard a few conservative pundits talk about the program today and generally disparage the program because of its “green” roots.

On the surface the program sounds promising as one couple highlighted in the article was able to trade in their high mileage SUV for a smaller passenger car.  The program requires that the clunkers not be resold.  Sounds pretty good?

I have a different view than most conservative pundits.  I still want to blast the program, but on purely economic terms.  On the surface (i.e. what is seen) sounds good; let’s get the really “bad” cars off of the roads.  If you dig a little deeper (i.e. what is not seen), however, you may come to the realization that the “rebates” given away is money that the federal government first TOOK from you and me.  That is our tax money that they are giving away.  Any chance that these folks will send us even a Thank You note?

As I read about and listened to people brag about how they were able to dump their clunkers, get a generous “rebate,”  and get a brand new car, I became incensed.  One businessman was planning to dumping many of his old trucks to update some of his fleet through the program.  Good for him, bad for you and me.

What happens to the clunkers?  As I mentioned, they cannot be resold, allegedly, however, they can be sold for “parts.”  I used parenthesis for “parts” because of my belief that many of these vehicles will be sold for “parts” only to find their way back onto the nation’s highways.  At a minimum, the parts will be used to maintain other clunkers and keep them on the road. 

I do believe in recycling and cars should be driven to death or adopted by others.  Maybe they can be sent to Cuba as I hear that they like old American Cars.  What I do not like is that the money that I earned is going to be given to someone else in this program. 

What is the real goal here? 

What problem are they trying to solve using our money?

I would like to make a prediction at this time.  Within 18 months some politician is going to lament the fact that fewer gallons of gas are being sold because of the more fuel efficient vehicles.  The unintended consequence of the program is that less fuel tax money is being collected. 

Government hates when tax revenues are down and we will be treated to another “crisis” due to crumbling infrastructure and the need to raise fees (they love to call taxes fees these days) to fill the public coffers (they should actually be called coffins as once they get our money it is gone forever).  True government creativity only really happens when they are looking for ways to take our money.

“The point to remember is what the government gives it must first take away.”
            –John S. Coleman
 

“But how is this legal plunder to be identified? Quite simply.
See if the law takes from some persons what belongs to them,
and gives it to other persons to whom it does not belong.
See if the law benefits one citizen at the expense of another
by doing what the citizen himself cannot do without committing a crime.”
               — Frederic Bastiat

 

Cash For ClunkersUpdate October 30, 2009:  Much has been written about the notorious Cash For Clunkers program.  Supporters relished in the fact that it was very popular and spurred automobile sales.  It should not be a surprise that a program that gives money away will be popular (at least to those getting the money) and should increase sales.  Opponents claimed that the program was a waste of money and rewarded people who probably did not really need the money and eliminated thousands of serviceable cars from the secondary market.

Here were are several months after the program and some of the results are in.  Nearly 700,000 claims were submitted under the program totaling nearly $3 billion.  Two American cars were in the top ten and both were Ford models.  Isn’t Ford the only American-based auto company that DID NOT take government money?  The top ten cars purchased were:

  1. Toyota Corolla
  2. Honda Civic
  3. Toyota Camry
  4. Ford Focus FWD
  5. Hyundai Elantra
  6. Nissan Versa
  7. Toyota Prius
  8. Honda Accord
  9. Honda Fit
  10. Ford Escape FWD

So what “clunkers” were taken off of the road?  It might not surprise you to learn that all of the clunkers were American made(Ford Explorer 4WD, Ford F150 Pickup 2WD, Jeep Grand Cherokee 4WD, Ford Explorer 2WD, Dodge Caravan/Grand Caravan 2WD, Jeep Cherokee 4WD, Chevrolet Blazer 4WD, Chevrolet C1500 Pickup 2WD, Ford F150 Pickup 4WD, Ford Windstar FWD Van).  Sounds like this was a program that stimulated the economy…in Japan.

No word on how the used car market was affected when the 700,000 used cars were destroyed and not available for purchase by folks looking for lower priced used cars.  It should be noted that these people are usually comprised of lower income folks who cannot afford new cars (even with incentives) and young, first-time car buyers.  Any guess what happens to prices when you decrease supply and there still is a demand?

key_art_edmundsRecently the automotive company, Edmunds, evaluated the clunkers program and their findings were not very complementary.  Edmunds calculated that each clunker actually cost taxpayers $24,000 which is much higher that the $4,500 figure often used in the media.  The basis of this conclusion was that the clunkers program only increased automotive sales by 125,000 vehicles and that the other sales would have happened anyway.  This is supported by the lull in automotive sales since the program ended.  David Tompkins, PhD, Senior Analyst for Edmunds.com was quoted, “Our research indicates that without the Cash for Clunkers program, many customers would not have traded in an old vehicle when making a new purchase.  That may give some credence to the environmental claims, but unfortunately the economic claims have been rendered quite weak.”

In a related story, the country celebrated in an announcement of a 3.5 percent growth in Growth Domestic Product (“GDP”) for the third quarter.  Stocks prices rose and the White House patted themselves on their backs.  This story is tied to the clunker program because nearly half of the jump was directly due to the clunker program and the future outlook may not be as rosey as reported by the Wall Street Journal

The White House of course attacked Edmunds.com for daring to criticize one of its programs.  In a statement by Bill Adams, spokesman for the Department of Transportation; “It is unfortunate that Edmunds.com has had nothing but negative things to say about a wildly successful program that sold nearly 250,000 cars in its first four days alone.  There can be no doubt that CARS drummed up more business for car dealers at a time when they needed help the most.”

I find it funny when a bunch of government folks figure that they know so much that they can feel comfortable blasting Edmunds, an acknowledged expert organization in the automotive industry.  It should be enough to take exception to the study and analysis, but the White House seems to relish taking pot shots and critics.  Maybe it strengthens their arguements to use invectives.  It seems rather childish to me.

In their roles as adults in the dialogue, Edmunds.com, responded with a press release of their own.   Here are some highlights:

  • 1370665001_8c3329d0afAt issue is one point of the analysis showing the taxpayer cost for every incremental vehicle sold was $24,000. To be clear, Edmunds.com is not disputing the government’s statements regarding total voucher applications, vehicles sold or voucher values. The key question is how many of these sales would have occurred anyway.  Apparently, the $24,000 figure caught many by surprise. It shouldn’t have. The truth is that consumer incentive programs are always hugely expensive when calculated by incremental sales — always in the tens of thousands of dollars. Cash for Clunkers was no exception.
  • The White House claims that our analysis was based on car sales on Mars and that on Earth, the marketplace is connected. We agree the marketplace is connected. In fact, that is exactly the basis of our analysis. [that Mars/Earth barb tossed by the White House was really witty and by witty, I mean silly and childish]
  • It is also claimed we missed the possibility that Cash for Clunkers generated excitement and consumers bought vehicles even if they didn’t qualify for the program — a claim that has been widely supported by anecdote but by little analysis. It does, after all, seem a bit odd that masses of consumers would elect to buy a vehicle because of a program for which they don’t qualify — doubly so when you add in the fact that prices shot up during Cash for Clunkers, creating a disincentive to buy.
  • The White House claims that the increase in fourth-quarter production reported by the car manufacturers can be attributed to Cash for Clunkers. But here is a better reason: the economy is recovering accompanied by improved car sales. No manufacturer increases production — a decision with long-term consequences — based on the 30-day sales blip triggered by an event like Cash for Clunkers.

obama-cash-for-clunkers-cartoonIn a related story, economists Simon Johnson and James Kwak released the results of a study on the government’s Cash For Shacks program (actually called the first time homebuyer tax credit).  Unfortunately for the White House the results were the same with limited incremental sales (sales that would not have happened) and the program actually caused home prices to increase. 

So the knowledge to take away from these incentive programs is that when the government offers more money to pay for something, the prices actuallg goes up.  That sounds an awful lot like what happens with higher education tuition costs.

3 CommentsLeave one

  1. Kevin says:

    I guess its alright that someone else will use our old gas guzzlers. As long as we can say that we’re making the environment better…

  2. Greg says:

    The more folks used to getting handouts, the more they will vote for more. It’s a nasty circle.

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