Tuesday, August 4, 2009

Cash for Clunkers runs out of gas...and it should!

The senate is having problems convincing republicans to approve further spending on the “Cash for Clunkers” program that ran out of money this week.
This should be a slam-dunk for the Democrats, but apparently it isn't. The additional $2 billion sought was to allow the program to continue so that Americans can get a subsidy to swap out less efficient, polluting gas guzzlers for more efficient, cleaner vehicles. These subsidies are from $3500-$4500 per qualifying vehicle. One of the problems with this program is the “qualifying” part. It only applies to vehicles that are manufactured after 1986. This seems strange if the goal was really about getting dirty, inefficient, gas guzzling vehicles off the road. It would make sense to want ALL vehicles who are in existence, all vehicles who get poor mileage, which may or may not have pollution control systems like catalytic converters to be eligible for the program. The program supposedly forces dealers who take these trade-ins to destroy the vehicles so they can't end up back on the road. Why are older vehicles excluded?
The other requirements, such as having to have owned, insured and registered an operational vehicle for at least a year prior to trading in that vehicle, prevents people from just buying a junk yard vehicle and swapping out for a new vehicle. This makes some sense.
The problems with the program are great. It is reported that dealers have given these rebates, but the government has been slow to pay the dealers back. Nearly half of the monies given out by dealers have yet to be paid back to the dealers. The mountains of paperwork to wade through to qualify a buyer and his trade in are daunting. Some buyers are finding out that manufacturers rebates can't be used with the government subsidy and that any discounts on vehicles some would expect to get, are not being offered as dealers feel no pressure to negotiate.
Many trades in vehicles find there way to the secondary market to be resold. Some end up in dismantling facilities to become spare parts for other vehicles if their condition is such that they could not be resold as a running, salable vehicle. The vehicles brought in under this program must be rendered inoperative (crushed). The regulations stipulate this therefore their value as potential spare parts for like vehicles still on the road is negated. This is having the unintended consequence of creating a potential shortage of core spares for reconditioning for the vehicles still on the road. Perhaps this is intentional. Who suffers for this except the less affluent that need to keep their vehicles on the road with those spare parts that will now become even scarier than they were, therefore more expensive and hard to find. Have a 1989 Ford Taurus wagon with a bad transaxle? Maybe you can't afford the rebuild but you might get one from the junk yard.....ooops! They are out of them and the local supply is all crushed by the government edict. Now what? Maybe you can find one on the web and get it shipped to you at a greatly inflated price.
This is just one scenario of course......

Maybe this whole program is a bailout for Detroit in disguise. The Unions and their workers are getting canned right and left, and the government is THE major stockholder on G.M. What better way to get some cash flow to “Government Motors”? What better way to get cash funneled to their union buddies while looking “enlightened” and “green”. The problem is that “Clunker Coupons” don't do much except add to the deficit and do little to increase the national wealth as most of the cars sold are old inventory that is being burned off, ding little to return auto workers to their jobs. Also most of the vehicles sold are small cars that have little profit margin for the automakers. The staple of the most profitable vehicles sold in the past were SUV's and full size pick-ups which are not the sorts of vehicles most folks are buying these days.
There might be a spike in the GDP in the third and fourth quarter which should make Obama and his minions crow with delight, making claims that all is working to plan and that recovery is just around the corner.
Certain quarters in Washington seem surprised that this program has dispensed so much cash so fast. Why should they be surprised? When you subsidize an activity, you get more of it. The U.S. Government has now become the go-to guy for cash, giving money to car buyers at our expense just so they will buy a car which they probably would have bought anyway. The automakers are off the hook, not having to make the best deal they can, or give the customary incentives to lure buyers. They also get to sell off old inventory without having to work hard or bargain hard for the deal. It is a win/win for the government and automakers, but a loose/loose for the average Joe who get to pay more taxes to service the debt, see more deficit spending, and they get to subsidies their neighbors’ car purchase via their taxes. For the car dealers, they get to sell cars, fill out massive quantities of government paperwork via a slow and sometimes intermittent website, and then wait around for the government to pay them back for the “Clunker Coupons” they redeemed. Some dealers report that the website has crashed repeatedly making it difficult if not impossible to process the rebates.
So much for government efficiency.... And these folks want to control our healthcare.....

No comments: