The government just spent billions of dollars on Cash for Clunkers and the results have come in. People traded in 10-year-old American-made cars for brand new Japanese and Korean cars. According to newspapers, the White House is saying that this will save jobs here in the U.S. I’m not sure how this is possible. A consumer driving a 10-year-old American car periodically buys replacement parts, mostly likely still made here in the U.S., and pays a mechanic, almost certainly still working here in the U.S., to install the parts. A consumer driving a new Japanese or Korean car has surely saved some jobs in Japan or Korea. He has also enriched the owner of a car dealership. But wouldn’t the net number of U.S. jobs fall when the old car needing periodic service is replaced with a new imported car that won’t need significant service for 5-10 years?
12 thoughts on “Cash for Clunkers: Another Assault on the Working Man?”
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Aren’t a significant number of Japanese cars assembled in US and Canadian plants?
Not that Cash for Clunkers isn’t an abortion of a program, but most Japanese and Korean cars are built in the US.
Philip, you should have learned a long time ago not to expect government policies to make sense. They are designed to get politicians re-elected or paid off, and the politicans are ignorant of economics and logic, but since most voters are too that doesn’t matter.
Chris, Poster: Thanks for the comments. I’m sure that the “assembled in the US” angle accounts for a lot of the jobs, but my impression was that a foreign-brand car, even if assembled in the U.S., contains many more foreign-sourced parts than a Detroit-branded car. Or at least a 2009 Hyundai or Toyota assembled here contains a lot more parts from Chinese, Korean, and Japanese vendors than does a 1997 Ford Explorer.
I wonder if I’m getting too old to understand the U.S. economy and government policies. I took economics back in the 1970s and 1980s and reading the newspaper these days it seems as though everything taught back then has been chucked out the window.
It was chucked out the window by a nexus of politicians and Wall Street bigwigs who discerned that their own power and wealth would thereby increase. There was no shortage of sensible people who understood what was going on, but the ones who profited from the unsustainable policies were able to shout them down until it was too late.
There is another angle to this in that in almost every respect outside of branding it sure seems like all of the domestic and international car companies are deeply intertwined, there is an interesting graphic over on Jalopnik:
http://jalopnik.com/photogallery/CarCompanyFamilyTree/1001026196?viewSize=thumb1280x1280
Or this post from Autoblog where they talk about the strategy behind the Ford Escape / Mercury Mariner / Mazda Tribute (same car with different nameplate).
Yeah, $3B to reduce around 0.1% of US gasoline consumption for a few years is a mere drop in the bucket, and amounts to even less considering the energy consumed to manufacture 690,000 new cars and scrap the old ones. And what did we do, create new debt in the range of $12-15B for the downtrodden consumer to pay off?
I appreciate the feel-good message this program creates for saving energy and reducing emissions, but apart from helping a few auto workers and banks, Clunkers didn’t accomplish very much. Too bad.
I don’t think the primary goal was environmental but a tactic to boost the economy and get people at least to think about buying a car. Sure it cost 3 billion but they sold nearly 700,000 vehicles, got a lot of TV time of people driving away in new cars and cleared a lot of inventory that maybe would have sat in lots when the 2010’s were rolling off the assembly line.
An additional 600,000 people collecting unemployment checks at $1000/month is $600 million/month. The longer the recession, the more costly it will be and the longer it will take to recover. And remember the majority of that $780 billion has not been disbursed.
Domestic content cuts both ways. Having a Detroit label does not mean that the car was mostly US content, nor does a Japanese label mean mostly non-US content. The mix is highly variable. Honda, for example, makes engines, transmissions, and bodies for some of their models in the US, resulting in a higher US content than some Ford and GM cars. Honda even exports some models back to Japan from the US. The mix is fairly dynamic from year to year. Most of the major manufacturers can shift production from country to country because of parts and design commonality.
There is an oversimplified observation that big cars have a higher US content, and small cars have a smaller US content irrespective of brand. But model by model you will find significant exceptions.
I gather what constitutes “sensible economic policy” both according to mainstream economists and what one learns in Econ 1 has changed quite a bit since the 1970s/80s – less Keynes and more Friedman was one of the changes. But what hasn’t changed is that there’s still very little relationship between good economic policy and what politicians actually do. That’s as true in the days of “cash for clunkers” as it was in the days of price controls on gas and “whip inflation now” buttons.
Economists have never managed to convince anybody even on the easy, obvious issues – that protectionism, rent control, and minimum wage laws are bad ideas – so how could they convince people on harder, more contentious issues?
Phil, why do you always have to think so much. Why not just enjoy saving $4,000 on this shiny new car?
What irks me is that these “clunkers” are scrapped. Why not give them to a family below the poverty line who cannot afford to buy a car? Why not drive the lot of them down to the Texas and California borders and sell them to Mexican residents for a steep discount? Why junk a serviceable asset?
Finally, as others have pointed out there is a fair amount of manufacturing and parts built in the US for foreign autos. A good friend of mine works in the Midwest for an auto parts manufacturer whose main client is Toyota.
See the URL for cars.com’s american made index. Many US cars are made from primarily non US parts and quite a few are assembled in Mexico or Canada.
In fact, there are more Toyotas and Hondas built in the US from a majority of US parts than Chevy or Ford. A Toyota Camry is the most american car being built today.
As far as losing the clunkers as a serviceable asset, trust thats been the case the vast majority of the time. Enterprising dealers realized that if they can sell a traded in clunker for more than the CFC value, they could just toss out the CFC paperwork and pocket the profits. A very good percentage of traded in cars ended up on the dealers used car lots, with a lot less paperwork and government wrangling.
The rest were stripped for usable parts and what remained was recycled.
In the meanwhile, lots of things for the car dealers and junkyards/recyclers to do during a very slow period, and lots of work for Americans making the cars people wanted to buy.