Cash for Clunkers: A Review

Cash for Clunkers should be an excellent lesson in why government shouldn’t forsake the Constitution and manipulate markets.  Lawmakers should look at Cash for Clunkers, and instead of patting themselves on their backs for saving Michigan, they should write that one down as something to never try again.

Now, I know, there has been a lot of Politicians either congratulating themselves for the “success” of the program or saying it was a necessary evil.  I thought it would be good to pause and, just like with any program, look back at who it helped and who it hurt.

Who it helped:

American New Car Buyers: Cash for clunkers put 700,000 Americans into a brand new, more fuel efficient car.  For these Americans, who previously owned gas hogs, they were able to get a nice discount on their brand new car.  There were probably some Americans who were not rich who actually were able to afford a new car because of this.

Ford: Ford’s sales were up in August. Cash for Clunkers helped bring them into positive territory.  As a result, they have hired new workers and increased production.

Japan: About half of the cars sold were Japanese.  Our tax dollars at $3,500 to $4,500 a pop helped sell about 350,000 Hondas, Toyotas, and Nissans.

Germany: Germany’s recession officially ended as foreign exports (such as Volkswagen) helped lift their economy out of it’s worst recession in 12 years.

Who it Didn’t Help:

Chrysler and GM: Despite Cash for Clunkers, both Chrysler and GM’s sales actually dropped in August.  Of course, many have been reluctant to get into a car built and serviced by a government entity such as GM.

Dealerships:Dealerships were specifically prohibited by law from reducing other offers to compensate for the cash delay of the Cash for Clunkers program.  As a result, many are facing serious cash flow issues as only 7% of Cash for Clunkers rebates have actually been paid to the dealerships.  In addition, it takes someone an hour and a half to fill out the paperwork.  This is time that could have been used selling cars.  Problems with paperwork ranging from company error to government error have caused many applications to be rejected.

Employees: Companies like Ford and some dealerships have hired new people, increased production, and expanded operations to meet this phony, artificial demand created by the Cash for Clunkers handout.  Unfortunately, the program is over.  The artificial demand was blown up like a typical economic bubble and then popped last week.  Will revolving door employment really stabilize the auto industry?  Throw in the effect of the unions on revolving door employment and the auto industry is going to be worse off.

The Poor: Think about it for a minute.  700,000 Americans bought brand new cars, but their old cars did not go into the used car market.  Instead, they were crushed.  While artificially increasing demand in the auto industry on the high price end, we were artificially reducing supply on the low price end.

The Healthcare Industry: By paying people $4,500 a piece to buy a car, how many people just could not pass up the deal even if they couldn’t afford it?  Here’s my question.  How many of those 700,000 brand new car owners took on a hefty car payment instead of buying health insurance?  File that with the other potentially interesting studies we will never see.

The Environment: Wait a minute, what?  How could having people turn in old gas guzzlers and buy new fuel-efficient cars be bad for the environment?  Well, not counting the new industrial vehicle production this plan has allowed, what do you think the effect of destroying 700,000 old cars and sending them to the scrap pile has on the environment?  The government wants to prevent what happened in Germany, where clunkers were re-sold on the black market to people who couldn’t afford new cars.  So they have put together a 136 page manual on how to ensure that the clunker is completely destroyed and the parts cannot be re-used.  Whatever happened to recycling?

The Government's Cash for Clunkers Recycling Program

The Government's Cash for Clunkers Recycling Program

That reminds me, Cash for Clunkers definitely benefited one other group: chemical makers.  In order to ensure that the clunkers never find their way back on the market, the government has ordered that dealers must pour Sodium Silicate into the engine and let it run for a few minutes.  The heat turns the Sodium Silicate into a glue after it has run throughout the engine, effectively killing the car.  According to chemical dealers who sell Sodium Silicate, sales have skyrocketed.

$3,000,000,000.  What do you think, was it worth it?


2 Responses to “Cash for Clunkers: A Review”

  1. 1 Susan Williams September 7, 2009 at 9:04 pm

    Too much regulation = bad for business.
    I’m a used car buyer- I agree – this stimulus package had a very small-minded goal – to stimulate buying in the short-term.

    Ford Motor Company also has a very small-minded, short-term goal in my community where it is partnering with a known polluter to build a 26 acre parking lot to unload Ford vehicles over an aquifer for 15,000 people.

    It is not a good idea Yet it is difficult to oppose big business, big money

  1. 1 Up Next: Dollars for Dishwashers « The Conservative Constitutionalist Movement Trackback on September 4, 2009 at 5:24 pm

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