Cash for Clunkers a Losing Proposition

I’m not sure how this sector didn’t fall on my radar yesterday, but if you’re looking for momentum, look no further. I really don’t understand what our Government is thinking, devoting 2 billion dollars that they don’t even have to what is essentially free money to people who want to buy a new car. Our country has turned into one big handout after another. Don’t people realize that we’re going to have to fund this through higher taxes in the future? And think of the interest that is going to accumulate on that loan. It’s really a trick to get people to go out and spend which is the exact opposite of what you should be doing.

Here is a link to a video describing the pros and cons of the program.

While I don’t agree with the program for so many reasons, here are others in this sector that should move in sympathy (see below). I’d be careful though, this recent move reeks of exhaustion.

• America Axle & Manufacturing Holdings (AXL)
• Tenneco (TEN)
• Dana Holdings (DAN)
• TRW Automotive (TRW)
• BorgWarner (BWA)
• Johnson Controls (JCI)
• Arvinmeritor (ARM)

And for more disturbing news regarding the program….

Comments

[gene1031:]

Let the program expire: Why should I be penalized by supporting a program which has rewarded individuals who were not smart enough with their automobile investment dollars in the first place?

Aug 02 08:36 AM

[notsosmart:]

automobile "investment"? no such thing.a loss the minute you drive that metal,plastic,rubber loser over the dealers threshold.

Aug 02 01:51 PM

[Mark Bern:]

I won't pass judgement on the program per se because there are quantifiable benefits derived by the economy (state sales tax, jobs, sales by a hurting industry, probably a small improvement in emissions) at a time when such relief is considered by most to be needed. Again, this too will be at a cost to future taxpayers and I will pay my share whether willingly or not.

However, I do question one highly touted aspect of the program: removal of gas guzzlers from the market and the resulting improvement to the environment through lessened emissions. Let me point out that I believe this to be a very noble idea. But, what I wonder about is this: how and who is monitoring the removal process? I mean, how do we know for certain that every car that is traded in under this program is going to be recycled?

Let's think about this for a moment. If you are an auto dealer and receive a vehicle in trade for a new car that gets only 15 miles per gallon and the government pays for that auto, do you then give the auto to the government? I don't think so.

Let's expand the example some more. If the vehicle you, as a dealer, received in trade has a market value of $2,500 are you going to send it in to be scapped and receive what? Maybe $250. Are the VINs being tracked to ensure that all those traded in gas guzzlers never get resold? Do we also track vehicles sold in Mexico to ensure that the vehicles were not transported down and resold in a market that wants older American cars? If you are the dealer having had a very difficult time as of late and someone comes to you and offers you double, triple, or quadruple what you could get if you sell your trade-ins for scrap and guarantees that the vehicles will not be resold in the US, would you deny your family and go with the plan. This good opportunity may not last much longer and then you may go back to some very lean sales again. Can you honestly tell me that any of the people running the big banks, were they to be put in such a situation, would turn down the extra cash? Would anyone on Wall Street look the other way? Would many of our elected representatives do the right thing when they knew their business may be starving for cash flow in another couple months, again?

I realize that there are a lot of really honest people out there. But I also understand a lot about human nature. I am a CPA, but I quit doing taxes for others because people wanted to take exemptions that they didn't deserve. How many people do you know that drive at or below the posted speed limit?

Are we really helping the environment or are we sending the sins somewhere out of sight and just pretending that we've done the right thing? Go to the border with Mexico, especially some of the more rural crossings, and watch all the old cars being hauled across. Then answer my question.

Aug 02 02:13 PM

[Mad Hedge F...:]

Not for the car industry and the states that collect the sales taxes. 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 Toyota (TM) 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 the fruit of 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 02 03:41 PM

[mjmeek:]

under that prog. the dealers are required to pour something into the engine that renders it inoperable forever (this from rept. from Detroit Free Press on C-span yest.)


On Aug 02 02:13 PM Mark Bern wrote:

> I won't pass judgement on the program per se because there are quantifiable
> benefits derived by the economy (state sales tax, jobs, sales by
> a hurting industry, probably a small improvement in emissions) at
> a time when such relief is considered by most to be needed. Again,
> this too will be at a cost to future taxpayers and I will pay my
> share whether willingly or not.
>
> However, I do question one highly touted aspect of the program: removal
> of gas guzzlers from the market and the resulting improvement to
> the environment through lessened emissions. Let me point out that
> I believe this to be a very noble idea. But, what I wonder about
> is this: how and who is monitoring the removal process? I mean, how
> do we know for certain that every car that is traded in under this
> program is going to be recycled?
>
> Let's think about this for a moment. If you are an auto dealer and
> receive a vehicle in trade for a new car that gets only 15 miles
> per gallon and the government pays for that auto, do you then give
> the auto to the government? I don't think so.
>
> Let's expand the example some more. If the vehicle you, as a dealer,
> received in trade has a market value of $2,500 are you going to send
> it in to be scapped and receive what? Maybe $250. Are the VINs being
> tracked to ensure that all those traded in gas guzzlers never get
> resold? Do we also track vehicles sold in Mexico to ensure that the
> vehicles were not transported down and resold in a market that wants
> older American cars? If you are the dealer having had a very difficult
> time as of late and someone comes to you and offers you double, triple,
> or quadruple what you could get if you sell your trade-ins for scrap
> and guarantees that the vehicles will not be resold in the US, would
> you deny your family and go with the plan. This good opportunity
> may not last much longer and then you may go back to some very lean
> sales again. Can you honestly tell me that any of the people running
> the big banks, were they to be put in such a situation, would turn
> down the extra cash? Would anyone on Wall Street look the other way?
> Would many of our elected representatives do the right thing when
> they knew their business may be starving for cash flow in another
> couple months, again?
>
> I realize that there are a lot of really honest people out there.
> But I also understand a lot about human nature. I am a CPA, but I
> quit doing taxes for others because people wanted to take exemptions
> that they didn't deserve. How many people do you know that drive
> at or below the posted speed limit?
>
> Are we really helping the environment or are we sending the sins
> somewhere out of sight and just pretending that we've done the right
> thing? Go to the border with Mexico, especially some of the more
> rural crossings, and watch all the old cars being hauled across.
> Then answer my question.

Aug 02 11:03 PM