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Posts Tagged ‘hardship’

Cash For Clunkers seems like a pretty good program. Bring in a not-so-great vehicle and get up to $4500 in credit toward a new vehicle, a value virtually no one would get from a traditional trade-in program. There are a few stipulations but nothing outlandish. And it’s helping both the consumer and the economy, right? What could my beef possibly be?

The long-term result. But even the short-term isn’t exactly pretty. Right now, this program is “helping” people buy cars that get “better” mileage than what they had. But $4500 isn’t a great discount on a new car and I don’t know whether most dealerships will allow it to be paired with other incentives or not. If not, buyers are getting screwed. Secondly, the mile-per-gallon average is grossly overestimated and has decreased the last five years or so. Which means buyers get less bang for their buck even when they try to make the best choice. On top of that, until an amendment to the program passed today, August 1, 2009, the cars being turned in were to have their engine blocks “killed” at the time they were traded (officials recommended water glass, a sealant and bonding agent, be run through the engine in place of oil; the damage would be total and irreparable) … except that, at the time of purchase, many buyers do not know if their old vehicle will be accepted into the program. Some dealers required buyers to sign waivers and release forms to indemnify the dealership against damages. Because if the old car wasn’t accepted, or if the new car didn’t meet your standards, or you decided you couldn’t really afford it, or if you needed to back out of the deal in any other way, your old car was already toast. Sorry, Charlie, you said you didn’t want it anymore.

And the long-term outlook is worse.

If you hadn’t noticed, used vehicles are going pretty cheap at the moment. They have been for about, oh, the last eight months or so … since the stock market fell and the country began to worry about ridiculously bloated banking corporations. My biggest beef with this program is how it will take thousands and thousands of perfectly decent used vehicles out of the market. Just how many? Well, using a bit of fuzzy math, I’m going to take the total Cash For Clunkers budget (including the new increase) of $2.95 billion and divide it by 4000, since some people will get a $3500 credit and some get $4500 … and for the sake of brevity I’m going to assume it’s a pretty even split. Okay, now if even 1 in 3 of all those vehicles being turned in were potentially re-salable (I think the average would be much higher than that, but I’ll play devil’s advocate and remain conservative in that respect) that means roughly 245,000 re-salable vehicles will be crushed or shredded by time the program ends.

Want to see a few examples of the “clunkers” being traded in? Here’s a random group provided by the owners themselves.

(Click here to view full-size.)

Yup, those look like total and complete piles of shit. I don’t know how the owners managed to get them to the dealerships for trade-in.

Sarcasm aside, that’s almost a quarter of a million perfectly good cars and trucks, including those above, permanently and irrevocably destroyed. How is that bad? Well, for some sellers it won’t be, because the price of un-crushed used cars will go up. But, ultimately, all those cars and trucks permanently removed from the market will have an effect on prices. What happens when demand remains constant (or increases) but supply diminishes? The price goes up. And that means higher costs for people who can’t afford new cars. It puts one more burden on an already overburdened class and will result in real clunkers getting driven for longer periods because owners can’t afford to replace them. It means greater hardships and fewer choices for low-income owners. And not only will the price of used cars increase, the price of many parts will increase because those hundreds of thousands of vehicles were crushed or shredded with their drive trains intact. (By law, the scrapyards are not allowed to part them out.) So millions of perfectly usable parts will be wasted, salvage operations face a shrinking pool of resources, and low-income car owners foot the bill.

Granted, Cash For Clunkers will probably get some junkers off the road and likely help a section of lower-middle class consumers sign on for a car they couldn’t otherwise afford. But it seems to me that the “cons” here outweigh the “pros.” By far.

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