The Lunacy of Cash for Clunkers

This is insanity.

Here’s an excerpt from an article in the WSJ concerning the C4C destruction program:

What Mr. Mueller discovered is that sodium silicate is the designated agent of death for cars surrendered under the federal cash-for-clunkers program. To receive government reimbursement, auto dealers who offer rebates on new cars in exchange for so-called clunkers must agree to “kill” the old models, using a method the government outlines in great detail in its 136-page manual for dealers: Drain the engine of oil and replace it with two quarts of a sodium-silicate solution.

“The heat of the operating engine then dehydrates the solution leaving solid sodium silicate distributed throughout the engine’s oiled surfaces and moving parts,” says the National Highway Traffic Safety Administration publication. “These solids quickly abrade the bearings causing the engine to seize while damaging the moving parts of the engine and coating all of the oil passages.”

The article notes that at one dealership the cars that were rendered forever inoperable included a 2002 Ford (F) Windstar, a 1999 Jeep and a 1988 Dodge van. The van’s engine took the longest of all to seize.

Dispel yourself of any notion that this has a thing to do with the environment. This is a give-away to the auto industry and a lucky few car owners that happened to be ready to buy a car anyway. In the process, perfectly good cars are being destroyed in order to perpetuate a “green” myth.

If anything, this program represents in spades the American propensity to over consume at the expense of considered conservation. The political class is simply demonstrating that they have no clue as to what the road forward should be and in lieu of a plan they choose to fall back on a strategy that encourages the acquisition of new goods when the existing model is perfectly serviceable.

The real tragedy may be the success that the program is experiencing. One would have hoped that we would have learned a lesson from the past year. Apparently not.

Comments

[User 465979:]

Yes, It is also amazing to me that perfectly good cars are being destroyed in the name of conservation. It seems extremely wasteful if you ask me.

Further insult comes from the fact that I have to swallow the idea of my tax dollars being distributed to people who have track records of making irresponsible choices with regards to the fuel economy of the cars they select. I feel as if I am paying taxes simply to subsidize other peoples excesses.

Aug 04 09:27 AM

[fatseal:]

How much did this thing cost per car if we're already out of money? obviously more than $4500.00 per car. And those 1980-2000 model cars could have been donated to any number of charities, instead of being killed. A horrible, horrible waste.

Aug 04 10:21 AM

[User 465979:]

Well $1 billion divided by $4500 equals 222,222 cars. Were that many cars sold in the few days the program ran? I doubt it, which means the balance of the $1 billion went to overhead. The question now is: How many cars were actually sold?

Aug 04 11:25 AM

[Mad Hedge F...:]

It works for me. 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 04 11:29 AM

[Stevie Mac:]

Interesting perspective.
I was fortunate enough to take advantage of this program, and traded-in a 1996 Chevy Blazer with 134k miles that was getting 13 mpg. I traded it for a 2010 Ford Fusion that gets 31 mpg. Removing this car from the road was definitely a good thing.
In talking with my dealer, he had 19 C4C deals last week, and all 19 were similar situations to mine. Hopefully this is true for the vast majority of C4C deals, but time will tell.
The more important issue is your assertion that this program was a give-away to the auto industry. I am not a Barry Obama fan, but I contend that auto manufacturing literally drives our economy, when you consider the trickle down effects to the tier 3 & 4 suppliers. A "give-away" such as this has tremendous trickle-down effects to the supply base. Using my experience as an example: My old truck was sent to a local scrap yard where it will be dismantled and recycled (the disabled vehicles do not just sit and pile up somewhere). This will provide work for a few days for the scrap yard employees. My new vehicle has a mirror produced by a local supplier, seats produced by a local supplier, and overhead console produced by local supplier. These components all have large plastic content purchased from several plastics molders. Don't forget the local bank that arranged my financing and the benefit to the dealer for the car, and this one transaction just helped (albeit in a small way) my local economy.
Perhaps I feel this economic downturn more because I live in Michigan. Regardless, I feel C4C is actually more of a stimulus than Barry's other attempts at it. This "give-away" isn't such a bad thing...

Aug 04 11:53 AM

[Pat Shuff:]

Audacity on dope.

Aug 04 12:16 PM

[Mad Hedge F...:]

uyhn 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 05:36 PM

[User 465979:]

I hardly feel warm and fuzzy about this program. Over the last several months I feel that the money I have paid in taxes has gone toward bailing out excessive and irresponsible corporations, excessive and irresponsible home buyers, and now it is going to excessive and irresponsible auto buyers. All this even as the national debt grows by leaps and bounds.

And what do I get from all of this federal generosity? I get to watch my 401k evaporate before my eyes. This is injustice pure and simple, and the leadership in Washington better recognize this fact before they inspire a flatout revolt.

Aug 04 05:54 PM

[Painesright:]

Come to think of it, why stop with cars??

Instead of giving our slightly used clothes to Goodwill, the Red Cross or the Salvation Army, let's cut them up and throw them away (cutting them up insures that some enterprising person can't salvage them from the trash and attempt to sell them for a profit... can't have that!).

Then, the gov't can send out lots and lots of Cash for Clothes checks!

That should stimulate all sorts of jobs in the otherwise defunct U.S. garment industry (money can only be spent on clothes that are made in the U.S. of course, good luck finding those!).

Moving on, let's open every can of food in our pantries and grind-up the food in the disposal!

No need to donate to a soup kitchen or food bank!

The gov't can send out Cash for Cans (cans of food that is).

That should really help the farmers (and fisherman if you include tuna and sardines!!). Presto, agriculture is back!

And of course, the next step would be houses. Instead of letting someone buy a foreclosed house for a low price that they can afford, let's bulldoze every vacant house in America!

Then, the gov't can send out Cash for Condos!

Imagine the construction jobs we'll "create"!! (btw, they are already doing that with the $8K tax credit)

Wait, there's more! How about tearing up all of the perfectly good roads!?! Rebuilding those could keep people employed for the next couple of decades!!

Wow, this is easy! Just destroy, destroy, destroy and pay for brand new stuff with other people's money (or borrow more $$ from our friends in China).

So glad that someone as smart as Obama, Schumer, Pelosi and Reid (and Frank, don't forget Frank) finally figured out how to fix our economy.

We are in SUCH good hands.

Not.

Aug 04 09:47 PM

[Tom Lindmark:]

Very good. You should start a blog. Thanks for the ideas.


On Aug 04 09:47 PM Painesright wrote:

> Come to think of it, why stop with cars??
>
> Instead of giving our slightly used clothes to Goodwill, the Red
> Cross or the Salvation Army, let's cut them up and throw them away
> (cutting them up insures that some enterprising person can't salvage
> them from the trash and attempt to sell them for a profit... can't
> have that!).
>
> Then, the gov't can send out lots and lots of Cash for Clothes checks!
>
>
> That should stimulate all sorts of jobs in the otherwise defunct
> U.S. garment industry (money can only be spent on clothes that are
> made in the U.S. of course, good luck finding those!).
>
> Moving on, let's open every can of food in our pantries and grind-up
> the food in the disposal!
>
> No need to donate to a soup kitchen or food bank!
>
> The gov't can send out Cash for Cans (cans of food that is).
>
> That should really help the farmers (and fisherman if you include
> tuna and sardines!!). Presto, agriculture is back!
>
> And of course, the next step would be houses. Instead of letting
> someone buy a foreclosed house for a low price that they can afford,
> let's bulldoze every vacant house in America!
>
> Then, the gov't can send out Cash for Condos!
>
> Imagine the construction jobs we'll "create"!! (btw, they are already
> doing that with the $8K tax credit)
>
> Wait, there's more! How about tearing up all of the perfectly good
> roads!?! Rebuilding those could keep people employed for the next
> couple of decades!!
>
> Wow, this is easy! Just destroy, destroy, destroy and pay for brand
> new stuff with other people's money (or borrow more $$ from our friends
> in China).
>
> So glad that someone as smart as Obama, Schumer, Pelosi and Reid
> (and Frank, don't forget Frank) finally figured out how to fix our
> economy.
>
> We are in SUCH good hands.
>
> Not.

Aug 04 11:40 PM

[TinyTim:]

So these vehicles with the killed engines go to boneyards to keep their brethren running for many more years by supplying cheap body panels, glass, drive train components, accessories, even engine components (alternators, fuel system parts, A/C), etc.

So killing the engine accomplished what?
One less cheap used car, driving up the price for those in this niche.

Hard to tell whether C4C was created as environmental, energy or automaker stimulus legislation, and how effective it is at each. Based on the sellout popularity, I'm sure this bill will have many fathers.

Aug 05 05:53 PM

[a. palmer jr.:]

I'm glad the cash for clunkers excludes anything older than a 1985. That way the old classic cars will be saved from extinction. After 1985 most cars were intended to be disposables anyway.

Aug 05 08:12 PM

[TCK:]

Don't forget about the 20 billion dollars that was spent just a few months ago on the GM/UAW bailout !

Aug 06 07:24 AM

[User 465979:]

Ok, now we have some numbers... See this article on reuters:

www.reuters.com/articl...

Right around 180,000 cars were sold under trhe C4C program. That comes to 180,000 cars x roughly $4000 per car, which equals $720 million out of $1 billion federal dollar used to fund this program. Put another way, $280 million dollars of the C4C program went to overhead... almost a full third of the funds!

Aug 06 09:35 AM