Cash for Clunkers May Cost Up to $45,354 Per Vehicle 286 comments
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The "Cash for Clunkers" program has been a "great success", at least according to the government, and the auto industry. Within days of its kickoff, all $1 billion allocated to the program has been used up by Americans who have eagerly lined up to trade their clunkers for new vehicles.
Some refreshingly honest reporting has come from Edmunds.com, a car buying site that is telling the truth, in spite of benefiting from an increase in business and site traffic, due to the program. According to Edmunds, about 200,000 old low mileage cars would normally be traded in, every 3 months, in exchange for more efficient higher mileage cars, without this program.
The highest rebate is $4,500, and the lowest is $3,500. If everyone qualified for $4,500 per vehicle, about 222,000 vehicles would have just taken advantage of the government's money. At $3,500, 286,000 vehicles will have been sold.
I assume that, given all the raving, the government will eventually get around to assigning more money. It will take at least 2 or 3 months for the legislation to work its way through Congress. Meanwhile, if all buyers have qualified for the higher $4,500 rebate, the "cash for clunkers" program will mean a marginal increase in car sales of 22,000 this quarter. $1 billion divided by 22,000 means a net cost to the government of $45,354 per car.
If all buyers only qualify for the $3,500 rebate, it means a marginal increase in sales of about 86,000, or a net cost to the taxpayers of $11,628 per vehicle. In all likelihood, however, there will probably be a mix of vehicles qualifying for various rebates between $3,500 and $4,500. Based upon that assumption, Edmunds.com estimates that the average cost to the taxpayer will be about $20,000 per vehicle.
Even most of the marginally extra sales really represent people who were going to buy a new car eventually anyway. They are just buying a bit sooner than they expected. Old clunkers don't last forever, and they are almost all eventually replaced. The government is shifting tomorrow's demand to today, stealing from tomorrow to pay for today, but at great cost to the taxpayer.
The "cash for clunkers" program is yet another boondoogle - an expensive waste of precious taxpayer dollars. Government spending should be reined in, in light of the multi-trillion dollar unsustainable deficits that this nation now faces. However, if we must increase government spending, the money would be better spent on infrastructure and education improvements that might help bring jobs back to America, and encourage long term growth, rather than cosmetic improvements to the short term earnings of makers of high mileage automobiles, many of which are foreign companies.
This government is, unfortunately, a reflection of the current state of economic immaturity that prevails in America. The vast majority of people, including most people in Congress, do not understand the forces that drive the real economy, and see only the short term view. That is how they get manipulated into allowing the Federal Reserve to behave like a slush fund for big banks, passing programs like TARP into law, and enacting programs like "cash for clunkers" which all abuse the taxpayers.
Disclosure: No positions in any automaker.
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Example: person trying to trade in minivan with >100,00 miles that was only worth $1,000 for a new vehicle. It get's his only smoker off the road, he gets into a clean and safe car, a car gets sold so the dealer and car company make money, the factory workers get to build a replacement and all the suppliers get to build all the parts. Also along the way the Gv't charges taxes on the sales, salaries etc... Short term it is an expensive program but at least real taxpayers are getting some benefit that is also good for the economy with some benefits for the ecology.
The math is absolutely correct. The idea is that a certain number of cars/trucks would have been sold anyway - Edmunds says 200,000 clunkers are traded in for fuel efficient vehicles EVEN WITHOUT GOVERNMENT SUBSIDIES!
The cost to the government of a "stimulus" is NOT $3,500 - $4,500 per car, because many buyers are getting the money even though they WOULD HAVE BOUGHT ANYWAY, without the program.
At $4,500 per extra car, the program costs the government $45,354 for each extra sale, above those that are normally sold anyway, exactly as the article states.
However more importantly, are the lines, "This government is, unfortunately, a reflection of the current state of economic immaturity that prevails in America. The vast majority of people, including most people in Congress, do not understand the forces that drive the real economy"
Brilliant lines, they sum up the entire mess. We have a bunch of good speakers in office that don't know their a*s from their elbow when it comes to the economy. The American people don't either as they have an anti-business mentality, learned mostly through our liberal education system.
The country is going to come out of this recession, only because of the trillions that are being spent. However, within 2 to 3 years you will see disaster strike due to these same spending policies. Our problems will be much worse then. This all due to ignornat Americans electing people that speak well.
Boy those unions bought Obama but good.
Do you stinking liberals get it?
Also, the article states that the 200,000 car figure data comes from Edmunds.com, which, apparently, has indicated (and they are about the most expert source of such data that exists) that this is the normal number of "low mileage" (or "low miles per gallon" old cars) that are traded in for new "high mileage" (or "high miles per gallon" new cars) every 3 months.
On Jul 31 01:43 PM dancingdad wrote:
> Avery must be a republican because he does math like one. His arguments
> are like the ones Bush made going into Iraq. First note he said
> 200,000 low mileage cars are traded in a normal 3 month period. (
> I'm willing to bet a large percentage of the clunkers coming in are
> high mileage ones.) He then assumes that all the clunker cars replace
> all the normal trades (bad assumption). His faulty logic leads him
> to conclude that 222,000 clunkers - 200,000 normal trades so we get
> 22,000 additional trade activity for $1B. All wrong, all worst case
> assumptions, typical republican BS.
He is not wrong in terms of how many additional or incremental sales resulted from this program. Taking the example of the average cost of $4,000 per vehicle to the government, there would be 250,000 cars sold under this program ($1,000,000,000 / $4,000). If 200,000 of those were going to be traded in for more efficient cars anyway, the incremental sales equals only 50,000. That 50,000 additional sales is the true benefit of the program because those are the sales that would not have happened during the current timeframe otherwise. Of course, they would have happened at some point in the future anyway, so we are only, as the author points out, moving future sales into the current period.
So, what the author is asking is: Is this an appropriate way to use taxpayer money? Or are there other programs that would benefits more of us and the economy overall more effectively?
On this issue, considering the manner in which the program has been managed thus far, I would have to say that it has not been money well spent. If, however, the government were to spend more over a shorter period of time the net effect to the economy would be greater at far less cost per vehicle sold. And that may provide greater short-term benefit to the broader economy.
Let's take a new example: Assuming that over the same period, the government made available $4 billion for such a program. If the average cost per vehcile were still $4,000 the number of incremental sales would jump to 800,000 new vehicles. Now the cost per vehicle to the taxpayers is only $5,000. Could that number of sales be achieved? I don't know. Would the program create a long-term benefit to the economy? No. Once you clean out all the clunkers available owned by people who are willing to sell them the cost of the program increases again and no jobs are saved or created beyond that point.
That said, I can't see any real justification for the program when alternatives are needed far more by society. While the impact on the environment would be miniscule, even that admirable goal does not justify the cost relative the benefits. Municipalities have put off replacing water and sewar systems that are over 100 years old. These systems are held together with patches and are inhabited by bacteria built up over many decades. Yes. We use chemicals to kill as many bacteria in our drinking water as possible, but it is not enough and the system does not provide an optimal health environment for the citizenry.
Local governments, such as NYC, Philadelphia, etc. are not managing their funds efficiently enough and will never have the fiscal ability to make the necessary infrastructure investments. These projects would take years to complete and would employ thousands of people who need jobs. And they are projects that need to be done for health reasons.
Obviously, there are many other investment in public infrastructure such as bridges that are desparately needed and would support future economic growth. These investments need to be made at some point in the near future. Why not now?
However, Edmund's projections have been way way off target and in ALMOST A WEEK NOT A QUARTER the first $1 billion has been exhausted which shows how it successful is has been (it even caught the most optimistic thinkers off guard). In fact even people who don't qualify for the program have begun visiting show rooms and are buying cars.
I hope that Edmund's releases a follow up article that will help clear the misconception they have fostered.
"Edmunds.com's research shows that typically 200,000 vehicles worth less than $4,500 are traded in for new vehicles every three months."
Accordingly, Edmunds is talking about ONLY the type of vehicles which would qualify for cash for clunkers. Anyone who has even a passing knowledge of the car market knows that far more than 200,000 used car trade-ins happen every month, let alone every quarter. The used car market is far larger than the new car market, and, even now, the car makers will sell about 10 million vehicles in this depression year.
You should read things before you launch your claims of authors throwing BS. Because if you don't, you will be throwing BS yourself, which it what you've done here.
The program will take the old clunkers off the road which should be a good thing because the clunkers aren't as safe and use more gas.
Deals like the trade in program are just going to give the dealers more profit.
The deal applies to imports as well as domestic makes. It would be better to have the deal only apply to domestic makes.
The Edmunds article was written days before the new sales figure were released and i rightfully expect them to put out a new article.
This article uses a projection that is day's old and did not take into account the current sales figures.
Fact is sales have risen dramatically and while some of this may have happened anyway ask any dealer and they will say showroom traffic has picked up, people who would have stalled a buy for a year or more are now buying.
Will it steal future sales, maybe.
By scrapping (not reselling vehicles) though it will also firm up the used car market so it might also create future new car sales.
Could the money be invested in the country's future in a better way. No question on that. But hey, the little guy got a break for a change.
On Jul 31 01:54 PM dividendmachine1 wrote:
> Every person who has a beater got rid of it and teh taxpayer picked
> up the tab
>
> Another example of taking tax dollars from those who are responsible
> to subsidize someone who is not
Also, while some of the people taking advantage of this program would have bought a car anyway, there are also reports of people who heard about the plan, brought their car in for the trade only to find out they did not qualify, but still bought a new car anyway. The clunker program has likely increased foot traffic into dealers even when people do not qualify for the deal.
The cash for clunker program does not offend me as badly as Goldman receiving 100% payouts on its AIG contracts.