Cash for Clunkers

I’m wondering if Cash for Clunkers will be remembered as a turning point for the American people. We already spent roughly $100 billion of taxpayer money on the obsolete technology of 3500 lb. cars made by uncompetitive companies, happily ignorant of the fact that the world will be driving cars more like the Tata Nano (March 27 post; March 23 post). Could we really have spent enough money to fund 5000 Googles on GM and Chrysler? Yes, but the sum is so vast that human minds can’t contemplate the scale of the spending.

Cash for Clunkers has the following elements of spectacle:

  • Americans destroying perfectly functional cars
  • Americans whose skills are uncompetitive in the global marketplace driving around in fancy new cars

Somewhere in China and India they must be having a good laugh.

The deeper issues are more troubling. Cash for Clunkers only makes sense if we believe that our #1 problem is that we don’t drive sufficiently fancy cars.

Will the program save energy? Let’s leave aside the obvious waste of destroying a working car here, building a new one in Korea, and shipping it across the Pacific. Consider that a person who has a car worth $4500 has a limited budget for gasoline. If you give him a car that uses half as much gas per mile driven, he may simply drive twice as many miles. One of America’s acknowledged #1 problems is urban traffic congestion. We’ve come up with a program to make it a lot worse. A guy who would have carpooled to save on gas, ridden the bus, bicycled, or found a way to avoid the trip is now clogging the highways in his new Toyota.

Will the program help less fortunate Americans? Consider a guy who has been foreclosed out of his unaffordable mortgage. He has a cheap apartment and a paid-for car that isn’t pretty but gets him to work. If he loses his job he can move in with his mom and not worry about debt. After Cash for Clunkers, the same guy has a new car that cost 10X as much as a Tata Nano and a consequently crushing car loan obligation through 2014.

What else could we have done with the money? 37 percent of Americans don’t have broadband Internet at home (source). If we spent the Cash for Clunkers money on Let’s Try to Catch up with Korea (95 percent of households with broadband, typically much faster than ours (one source)) a lot of Americans might not have needed to make so many trips in their cars because (1) they could work from home, (2) they could shop from home, (3) they could get information from home, (4) they could find out, from home, that some place they were planning to go was in fact closed.

11 thoughts on “Cash for Clunkers

  1. I’m wondering if Cash for Clunkers will be remembered as a turning point for the American people.

    Quite possible.

    The program is embarrassing and grotesque, eclipsed only by the glib high-fiving going on amongst politicians that are heralding it a “success.” It would take a creative genius to dream up ways in which giving away money might not be a success.

  2. I don’t know. I think measuring all the impacts of this program (both positive and negative) is quite complex. My take on this is that $3,000,000,000 is a drop in the bucket compared to all the other bailouts going on, and this one at least has some good side effects.

    I wish this much press was given to the $100,000,000,000 automaker bailout – which I find absolutely execrable. Propping up an outdated, uncompetitive industry dependent on a fossil fuel that is a) about to run out and b) massively contributes to global warming is a fantastically bad idea. We spent far more money on this bailout than we spend on research to develop alternative fuels and other ways to combat global warming.

    But even the $100,000,000,000 pales in comparison to the Wall Street bailouts, which have to be counted in the trillions. Not only are we spending trillions, we’re doing nothing to reform the financial industry, setting up enormous moral hazards for the future.

    Compared to all that, spending a few billion to increase the MPG of Americas car fleet is the least of our worries. My only wish is that this program was implemented sooner – BEFORE spending all that money on bailing out the car industry.

  3. This point is misdirected.

    “Americans whose skills are uncompetitive in the global marketplace driving around in fancy new cars.”

    About every six months I see an interview or a story where a tech CEO is whining about the dearth of engineers in the marketplace, in grad schools and in undergraduate programs. (Aviation journals make the same whine but frequently include airframe mechanics in their complaints)

    There are plenty of engineers out there, just not a lot that want to work in a career field where the payoff is a $45,000 salary in an industry whose management advancement decision tree has one outcome – offshoring.

    I know quite a few engineers; mechanical, electrical and aerospace, none of whom are working as engineers nor have any desire to do so. Only one of them would still have gotten the degree had he had it to do over again.

    There is no sense in spending years getting advanced training in a discipline that has no economic payoff. Far better to go to work for Goldman Sachs et. all where the manipulation of options and the production of nothing results in seven, eight and nine figure paydays.

  4. I can not for the life of me understand how Americans can scream blue bloody murder about bank and investment firm bailout Billion$ while they happily take hundreds of Billion$ in what is essentially even more bailouts themselves.

    Think about it folks. You’re borrowing money from a bank that is backed by Billion$ of your tax dollars in bailouts and government guarantees on money your government either printed or borrowed from China to finance a new car that was made using Billion$ of your tax dollars.

    Stupid is such a small word to describe the depth America continues to slide to trying to maintain the FALSE BUBBLE that continues to grow in apocalyptic size.

    Good luck and you might want to stock up for the long cold winter ahead.

  5. What bothers me about this program is the fact that once again, the government is encouraging average Americans to spend on items they may not need with borrowed money. Rewinding back to 2008, didn’t we just learn our lesson that when you borrow money or make purchases on credit, you should realize that that money will have to be repaid eventually. Thus before doing so, we should seriously consider our ability to repay the loan down the road?

    To me, the government is once again tempting people, who may be happily driving their clunkers around, debt-free, to go for that brand new car, something that they do not need at the moment. And knowing the average american, how many of them, do you think, will ponder seriously about the new debt-burden and their own repayment ability before happily turning their clunker in at the local dealership and walking away with a new debt timebomb?

  6. Three points have not gotten their fair shrift:

    1] Many “non-morally hazardous” folks (i.e., those who do not need to take on more debt to procure a fancy new car) are taking advantage of this plan. A successful lawyer friend of mine traded in a ’94 Ford Explorer for a spiffy new Prius…

    2] This must be killing the used car market. Too bad they don’t have a powerful lobby!

    3] The same outraged left wingers (Stiglitz, Krugman, etc) who meticulously counted interest in tallying the “true cost” of the wars in Iraq and Afghanistan conveniently neglect the 4.5% interest we are paying on the $3B over the next 30 years, making the true cost cost that we will ship to Japan+Korea+China closer to $12B…

    Ah well, since only 50% of the population pays taxes, it’s no big deal!

  7. Cash for clunkers is hurting charity car donation since the amount of the voucher is so much more than the tax deduction one receives when they donate a car. When this legislation was first proposed, charities requested that they be given the c4c cars and allowed to determine their fate. Cars in poor condition would be scrapped. Those in good condition would either be given to a needy person or sold with the charity using the revenue to help fund their programs. Our concerns fell on deaf ears!

  8. What I want to know is what the average amount each new car drops in value the minute it leaves the lot?

    And I want to know if the dealers are no longer making “deals” for customers since the customers are already so happy with their “deal”. Sure, some people are junking their gas guzzlers for something better. But I don’t know their actual financial situation.

    Talk about an amazing deal for such an industry. I wonder who it was who truly came up with the idea in the first place to convince the government to give an astronomical amount of money to them so the government can also pay them for the money they mark their product down so that they likely don’t have to mark it down what they normally would have?

    … I have a sneaking suspicion that it wasn’t someone specifically in government in the first place with that bright idea.

  9. Well…let me was great to find your log just now as I was searching for info on this program. First of all, I usually agree with most of what you write, but here I have a different perspective… I am a single mother of four. My ex refuses to pay child support or give me my court ordered settlement..I work hard all day and ride a mountain bike to and from work…15 miles each way. I have a big 99 Ford that was great with all of the kids, strollers, horses, etc… Now that I’m struggling financially and my 10 year old car is beginning to fail..I’m excited to think about getting a new car. I’m thinking of a Jetta. The car payments are low for a five year lease…less than 200.00 a month. My insurance will be about 30.00 more a month, BUT…I will save about 150.00 a month on gas…So, I need a dependable car and this is a perfect opportunity for me to do so.

  10. DD: Good! I’m glad you were able to capitalize on the program as it sounds as if you have thought it through. If I was in a situation where it would make sense, I’d jump on it as well. Unfortunately, that doesn’t make the program any better for the country. All of the points made above seem pretty solid but to me, it just doesn’t make sense to whack a perfectly good (albiet, guzzling) vehicle when there are so many that cannot make use of the program that are driving real pieces of crap. I can’t blame you for the problem – if it is raining soup, you’re crazy not to hold out your bowl but please consider the big picture when deciding on the value of the program.

  11. Just thought you might be interested to know that it was Bruton Smith- Charlotte, NC- Owner of at least 45 Car dealerships, Charlotte Motor Speedway, Atlanta Motor Speedway and several other racetracks, is the person who came up with the idea for Cash for Clunkers a year ago. He was on Talk Radio 1110 WBT telling everyone about his idea and said he was going to call his good pal Harry Reid about it. Everyone listening thought he was joking including Keith Larsen the Talk Show Host. Well- he wasn’t joking and he got the Cash for Clunkers going. NOW- per last week January 20, 2010= Mr Bruton Smith is on the radio again (1110 WBT) with the idea to do a second Cash for Clunkers. He was going to call his good friend Harry Reid about doing it again. I listened everyday to this radio show.. Someone might want to check this out. Something smells fishy.

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