'Clunkers' Needs More Cash

“Cash for clunkers” is out of money! So what to do now?

The “cash for clunkers” program has been a roaring success. In just one week Americans bought enough new cars utilizing the program that the NTSA said it was pretty certain it had exhausted the $1 billion that had been appropriated and was, therefore, suspending the program. Who says the government can’t do something right.

But now what do you do: Throw a bunch more money at the program when the budget is strained to the breaking point? I think it’s a no-brainer for politicians. First, they’re going to be besieged with major league whining from constituents who missed out and of course it’s simply not “fair” that everyone shouldn’t have their shot. And, second, when you’re desperate for any little bit of positive economic news to feed the masses, this is just too good to pass up. You get immediate press speculating about all those new car sales and when the monthly auto sales numbers come out they’re goosed to the heavens by the program.

You can count on this one getting more funding. Actually, if you do it right it might not be such a bad move. If you divert a couple billion dollars' worth of unspent stimulus money it should do a lot more good than it will eighteen months from now funding some nebulous politically correct social program. What a novel idea, actually getting fiscal stimulus out the door and to a proven program. Never happen!

Now let’s throw a little cold water on this thing. The program is being credited with creating 250,000 new car sales. Assuming that somewhere around that number of clunkers were traded in, what’s happening to them? By law, I believe, they’re supposed to be reduced to scrap. I assume that means the dealers have to come up with a piece of paper proving they went somewhere that would happen.

Do you think that 250,000 cars in a week were shipped off to the nation’s junkyards to be rendered? More to the point, do you think that the government has the ability to ensure that the law has been complied with? I suspect you’re with me by now. There are probably a lot of clunkers out there that are going to slip through the cracks given the speed with which all of this is happening. Someone is going to make a lot of money off of this with the government footing the bill.

That might not be all that bad, though. Think of the secondary stimulus when a lot of pirate clunkers creep back into the auto fleet. Just keeping those puppies running is going to fill the pockets of a lot of mechanics.

More: here

Update: I told you they wouldn’t let this little political jewel die. Just in from Reuters:

The U.S. government will not suspend its $1 billion “cash for clunkers” auto sales incentive even though confirmed sales and pending transactions neared the limit of 250,000 vehicles much sooner than expected, an Obama administration official said on Thursday night.

The White House was working with Congress to try to extend funding for the program, said the official, who was not authorized to speak for attribution.

Now, where does the money come from? Please just divert existing stimulus appropriations!

Comments

[jaxon:]

It doesn't matter if they more money. They problem is still the backlog. Read this article: The Real Reason for the "Cash for Clunkers" Suspension. The ex car salesman blog shares exactly why they stopped the program. Even reports that some sales managers are calling asking for the money back because they were denied the rebate when the final paperwork was submitted but their car was already ruined by dumping a solution in the engine. They now have no car. Scary. See: tinyurl.com/ml9sdo

Jul 31 01:12 PM

[Tom Lindmark:]

Thank you. That was a very useful link. I put up a post on my blog about it.


On Jul 31 01:12 PM jaxon wrote:

>
> It doesn't matter if they more money. They problem is still the backlog.
> Read this article: The Real Reason for the "Cash for Clunkers" Suspension.
> The ex car salesman blog shares exactly why they stopped the program.
> Even reports that some sales managers are calling asking for the
> money back because they were denied the rebate when the final paperwork
> was submitted but their car was already ruined by dumping a solution
> in the engine. They now have no car. Scary. See: tinyurl.com/ml9sdo

Jul 31 01:56 PM

[Pat C:]

Great time to be in the auto salvage business, they are sure to make a killing. Melt the engines for scrap and sell the remaining parts to rebuilders and Mexico.

Jul 31 02:51 PM

[Mr. Ed, Jr.:]

Jaxon, that is a good link. Thanks

Let's see...where to begin....

A 200 page rulebook for the car dealers...
Government website unable to handle traffic...
Cars crushed and then some customers are informed that government has rejected the deal-- "Come on in and bring $4500 with you".....
Delays, delays, delays.

Now, since everybody who has been thinking about getting rid of their old car for a newer one will be "pushed forward" into buying in this clunkers program, what will car sales look like for the next 6 months ? I will venture a guess that sales will decrease by the approximate amount of any increase created by this program. Then we will have just wasted billions more, for no good reason.

But, now it is time for the government to move on, bringing this same magic to bigger and better programs, like health care.


On Jul 31 01:12 PM jaxon wrote:

>
> It doesn't matter if they more money. They problem is still the backlog.
> Read this article: The Real Reason for the "Cash for Clunkers" Suspension.
> The ex car salesman blog shares exactly why they stopped the program.
> Even reports that some sales managers are calling asking for the
> money back because they were denied the rebate when the final paperwork
> was submitted but their car was already ruined by dumping a solution
> in the engine. They now have no car. Scary. See: tinyurl.com/ml9sdo

Jul 31 03:01 PM

[Pat C:]

Hey what can you say - it beats the heck out of wasting $14 billion bailing out GS thru AIG.

Jul 31 03:35 PM

[Diogenes of...:]

Can I have my rebate in Australian Dollars?

Jul 31 04:12 PM

[Fighting Yoda:]

Peter Schiff today on Cash-for-clunkers :
"The recently passed “cash for clunkers” program (currently on-hold, as it ran out of funding in one week) is a perfect example of how government policy can make the economy worse. By incentivizing Americans to destroy fully paid-for cars so they can go deeper into debt buying brand new ones, the government weakens an already crippled economy. The last thing we want to do is subsidize Americans to go deeper into debt by buying more stuff. Don’t they realize that is precisely the behavior that got us into this mess?"

Jul 31 04:12 PM

[Tony Petroski:]

For those who think "World War II" got us out of The Great Depression, cash for clunkers is for you. It's the nearest thing I've yet seen to the calls for us to tear down our homes so we can rebuild them again and get this economy jump-started.

An earlier poster had the "clunkers" being melted down. Not so. They'll be sold "as is" because they still run, they're not all "clunkers" and "gas guzzlers," the government (and that, my friends, is You and Me) is subsidizing the trade-in value of the "clunkers." Those clunkers will be sold and the "scrapped vehicles" will be those that were already scrap and sitting in the back of the salvage yard. Trust me, these guys can handle the switch of a VIN.

Jul 31 06:14 PM

[manya05:]

Interesting article and all good comments, but there is an angle to this story missing. I am not sure it was a consideration when passing this law, but there is a cost to society of having clunkers still on the roads:

1) Safety, more accidents and more medical costs associated with these accidents

2) Pollution, both in the form of emissions (and associated medical costs as well), and other pollution (oil spilled, clean up, etc.)

I am sure some economist out there can put a cost to society associated with running a clunker each extra year. If we offer a cash rebate equal to 2-3 years of these costs, we probably come out eve. But, if the cash rebates are 20 times the yearly societal cost of the clunker, then it was a bad deal. I do not have the numbers to argue one way or the other.

Aug 01 05:14 AM

[a. palmer jr.:]

I'm sure the environmental damage is far greater from building all these new gas saver cars than from just going ahead and driving the older cars that were already here.
Another thing: I wish people would quit calling this program a success. Anybody that gives money away is going to be successful at it. I just wish the politicians would give only their money away!

Aug 01 09:28 AM

[BrentB:]

The whole idea is so flawed economically I am surprised so many people think it is a success.

Who takes advantage of the program? Which 250,000 people bought new cars and pocketed the cash?

It was the 250,000 people who were most likely to buy a car anyway. They got the car they were going to buy and they got the cash.

What happens now? Those 250,000 who would have bought cars anyway over the next year now have a new car. They won't be buying another. So, sales are lower by 250,000 from what they would have been with no plan over the next year.

Net after a year - tax payers out a billion, auto industry nets out at 0, 250,000 got a deal on a car.

It was a dumb program. Extending it makes it even dumber.

These are supposed to be the smart guys. The previous bunch was dumb - no question. These guys may well be smarter, but they are still too dumb to run a country.

Aug 01 09:52 AM

[john s. gordon:]

author - your picture fails to show a smoke cloud coming out the exhaust therefore it can't possibly be a clunk.
> jack

Aug 01 10:02 AM

[Duude:]

This cash for clunkers is an incredibly stupid idea. While car sales have been slow, this idea doesn't really create much more demand that what would have been in the pipeline anyway. Every month decisions are made to buy new cars. This only steals sales from later months. As for ridding our country of clunkers, I say not so fast. The salvage yard won't be crushing these cars, rather making them permanently inoperable. They will still part out the vehicles thus supplying the junkyard business a new and ready supply of parts so that the rest of us can keep our clunkers operable for a longer period of time. One could even argue that with a greater supply of used parts in inventory we may see some price competition for future used part sales. Lastly, all this for what will certainly turn out to be billions spent on a stupid idea.

Aug 01 12:02 PM

[Chancer:]

I heard the salvage yards are complaining about lack of value after cars have been damaged by dealers. It is a risky mess for dealers like any government program; but worth it for them as they are selling new cars, which means more service business for them, where they make the money.

It helps the car companies, the unions, and makes congress and Obama look good, even if costing a lot.

Many still good cars will be destroyed. May drive up value of existing used cars.

Aug 01 12:31 PM

[Robert Wein...:]

Does anyone give any thought to what this does to our economy???

Look, I understand some in DC would say don’t worry about taking away all the cheap affordable cars off the market for people who may not be able to afford a more expensive car. After all we will give the poor people money and handouts and they will be fine.

I for one am not fine with this and not only is it a total waste of money but its filled with unintended consequences like distorting the used car market. How many jobs (think mechanics, used car lots, auto parts shops and salvage yards) will be LOST as a result of this giveaway. A a very minimum lost wages and lower income for people that service used cars will happen. While no numbers yet exist and maybe hard to calculate I have to wonder what the net result is for AMERICAN jobs/income. After all some of the cars being bought are foreign made cars and most of the jobs/income being lost are American jobs.

As I understand it many of the new ‘purchases’ would have happened anyway with our without the government handout(Duh).

Whats gonna be the next great idea? How about we start burning down houses that were built before 1975 with less than 10 inches of insulation if you buy a new energy star house. That would give firefighters plenty to practice on (first controlling the burning and then putting the fires out in a controlled method) as well as take a lot of houses out of the marketplace that dont have as high of conservation levels.

You could give the new home buyer a $25K credit and that would make buying a new home more afforable. That would put a lot of people to work building new homes and get rid of a lot of excess homes on the market.

You just need to ignore the facts that it would raise the deficit (wont it be great to tell the children how their future was mortgaged away so we could destroy cars and homes) and lower the total assets that America owns but lets not get facts in the way of change.

The real scarry thing as I write this is wondering how many people will read the home burning concept and actually think it might be a solution to the housing problem......

DC should rename itself to UC (Unintended Consequences)

Want to see what they are doing with the cars to make sure no one drives a “Clunker” again. take a look at the youtube video. If your a taxpayer and this doesn't make you mad than I don’t think your paying attention.

youtube.com/watch?...

Aug 01 01:49 PM

[Mad Hedge F...:]

I love it. Perhaps it was the newspaper gene in me that made me screech my car to a halt when I saw a near riot in progress at my local total Toyota dealer. The showroom was more jammed than the unemployment office, with eager salesmen recalled from vacations manning card tables set up in every available space. I managed to grab one peripatetic salesman by a lapel, who gushed that they sold 45 cars yesterday, compared to ten for a normal Friday, and that 35 of these were due to the Cash for Clunkers program. Sure I could get a $4,500 credit for my 1995 BMW (17 mpg), and apply it to a new Prius (50 mpg), taking the price down to $19,500 and the monthly payment to $450/month for five years. In fact, the government stimulus program was so successful, that it ran out of money in the first four days, and congress rushed to triple it to $3 billion on Friday. It was like the survivors of a ship torpedoed at sea were swimming frantically for the only piece of wreckage that floated. Assuming that the average car drives 10,000 miles a year, and the average swap generates a mileage improvement from 15 mpg to 27 mpg, junking 750,000 clunkers will save 30 million barrels of crude a year, 1.5 days of our total annual consumption, or three days of imports. I asked to see the cars that were traded in and was told that the lots for the dealer, the used cars, and the detailer were all full, but I could see some if I went to the Target nearby where they were renting extra spaces. There I saw the fleet condemned to clunkerdom, GM Safari’s, Jeep Cherokees, Buick Regals, Dodge Ram pickup trucks and vans, and Chrysler minivans by the dozen, all with “CFC” marked on their windshields, a certain death sentence. These sorry excuses for transportation will never belch blue smoke, nor drip oil on our interstates again. I can’t imagine a sorrier commentary on the management failure of the US car industry for the last 30 years.

Aug 01 04:29 PM

[spald_fr:]

A nation that destroys perfectly good cars, and taxes the public $4500 each time it does so, in order to diminish a “global warming” that doesn’t exist, is a nation that has clearly lost its mind.

Aug 03 10:59 AM

[User 383693:]

The Administration Cash for Clunker is equivalant to the $300.00 stimulus money to revamp retail in the later part of 08 adn 09.Nice political booster. A political sugar high. But this Cash clunker program is good for those who could, did take advantage of it. But in reality it wont do anything to the overall state of the econimy. This program will be the "Jump the Shark" of this presidency.

Aug 03 12:54 PM

[sbloomqu:]

I too, as a person who works for a car dealer, fear the future ramifications of this program. Most likely the boom we have seen of late will be met with tumbleweeds through our showrooms again after the dust has settled and the program is over.

The amazing issue I currently see is the utter incompetence of the government when implementing this program. My dealership and every one we have talked to are all waiting on our first accepted claim with the government. We have over 50 deals backlogged waiting on something from the government telling us we did it right. currently they have rejected every submission to date because they didn't like the wording on our titles, literally they didn't like that we used the word "Auto" instead of "Automobile". The nitpicking going on is rediculous and half of the things they want and change daily don't make it to the 200+ page instruction document.

What we are going to end up seeing is dealers across the country essentially fronting the government's money to the customer and then left holding the bag. With our over 50 deals (and mind you that this is probably a gross underestimate as our weekend sales aren't in yet) we are in the hole $225,000 in roughly two weeks of this program. So my question is, who exactly is getting money and how the heck are they doing it because we have wasted approximately 150 man-hours on this program so far and have nothing to show for it.

And the really scary part is that the government and all those idiots on capital hill think they can run health care? Wow, just wow.

Aug 03 01:47 PM

[Mad Hedge F...:]

dgbn So now we have euthanasia for cars. The Wall Street Journal tells us that a government condition of the Cash for Clunkers program (see my last report at www.madhedgefundtrader... ) is that clunker buyers total the engines by pouring sodium silica into them. That way they can’t be resurrected like Frankenstein at the junkyard. What’s next? Free Viagra for the high mileage, new car buyers? There’s a certain poetic resonance there. Anything that works. In the meantime, the Republican Party is slashing its wrists by trying to block an expansion of the program. Is Mc Cain trying to lose the election a second time? I think he is oblivious of the warm and fuzzy feelings the program is generating, which is far more valuable than any direct economic impact. Don’t they have Ford dealers in Arizona? I never thought I’d run a car company chart again, but here is Ford in all its glory, up a mind boggling 65% since Cash for Clunkers started. Like virginity, confidence is very hard to recover, once it is lost.

Aug 04 05:32 PM