Cash for Clunkers Goes “Clunk”

July 31, 2009 by  
Filed under Debt and Credit

What’s the fastest way to spend taxpayer money? Offer it to car hungry consumers who cannot wait to put the debt hooks back in their mouths.

I think the sudden suspension of the cash for clunkers program confirms one suspicion that I’ve had:  The dramatic contraction of our economy has not totally extinguished the fires of debt-driven consumption. Apparently there are thousands of owners of clunkers (a/k/a paid-for vehicles) who are eager to trade a $4500 government credit for years of new car loan payments.  Congratulations fellow citizens. You have not lost your taste for the good life.

In some ways, I empathize with those who sought a cash for clunker deal. Mrs. ToughMoneyLove and I own three vehicles, all of which would qualify for the program (although two are worth way more than $4500). I seriously thought about surrendering that third clunker – a ginormous, high-mileage SUV that we use occasionally for towing trailers and hauling the dogs around. But that would have started a chain reaction of vehicle swapping and buying that would have ended up costing us thousands in depreciation. That realization stopped me cold.

Our government is not competent at much but it sure knows how to chum the waters to attract the borrow-and-spend types. Unfortunately, there may not be enough chum to go around for every eager borrower. But the money shortage may not last long.

How many “successful” government programs like this ever really go away? As long as $4500 will buy votes, Congress will keep the money flowing. I’m betting that the phones at congressional field offices all around the country are ringing off the hook, courtesy of buyers and car salesman trying to close a clunker deal and get a loan approved.


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12 Responses to “Cash for Clunkers Goes “Clunk””
  1. Zyzzyx says:

    Yeah, I’ve been surprised at how many folks I’ve heard of going out and buying a new car because of this.

    And then there’s folks who say this is a great thing for the environment. Meh… I don’t think this bill was ever about the environment or lowering gas/oil usage, its always been about reactivating the consumer economy.

    I’m glad that I’ve got a 10 year old car that I really like, is in great shape, gets decent mileage (27 overall avg), and is PAID FOR. :) Now, if I’d just ride my bike more often.

  2. Greg says:

    I think that the House has just thown 2 BILLION more toward the “cash for clunkers” scheme! Those who go for the chum need to add a “P” to the end of the word: CHUMP

  3. lurker carl says:

    I wouldn’t mind trading my ancient Suburban for an econobox. In a few more months, it will no longer qualify for the program due to age. But it runs good, looks good and is very reliable. Economically, I can not justify throwing a perfectly good vehicle away just because Uncle Sam offers me (with my own tax dollars, by the way) a bit more than it’s current value. Especially not for a new vehicle, they plummet in value as soon as your name appears on the title. This is a way for the manufacturers (and Obama, in GM’s case) to unload all the remaining 2009 vehicles.

    No thank you, I’ll stick with what I’ve got.

  4. Rick Beagle says:

    Hmm….

    I do not understand the fuss here. And this is some sort of plan to buy votes?! Sigh….

    Reduced emissions, reduced dependency on foreign oil, stimulated economy (job), and we helped people get more reliable transportation… what’s not to love about this? We actually have a bill that impacted real lives and real people in a proactive and positive way, and somehow you all think this is bad?

    Here is the real question, how many of you are just bitter because tax payer money was used in a way that didn’t help you?

    Peace.
    Rick Beagle

  5. lurker carl says:

    I’m not bitter at all, Rick. I am fully able to take advantage of the program but choose not to. I prefer to keep my old ‘clunker’ rather than acquire an overpriced new one. It’s a matter of personal economics not meshing with political economics.

    This program is very short sighted, however. Car sales will plummet when the money is gone. The manufacturers and dealers will be worse off from where they were before – too much capacity but even fewer buyers. The environmental impact is questionable, insignificant reductions in air emissions versus the impact of destroying and manufacturing vehicles.

  6. I’m not bitter either, just sharing Mr. ToughMoneyLove’s dissapointment at seeing a gullible public swallowing another negative input into the future of our economy. Most people, not all but most, who are jumping into this are driving the “clunkers” because they didn’t have the money to buy a newer car.

    Buying things we cannot afford is what produced this depression. This so called stimulus is not designed to improve the economy by stimulating new production and wealth to make reasonable purchases valid. Instead it entices people who had started to save a little into getting into more debt. So it is not good for them.

    But in the end what is even worse is that the government is not giving anybody anything. It is borrowing money it doesn’t have and lending it to us. Of course some people get the money while all of us have to pay it back with interest. You and I and everyone else who did not get a car will still have to help pay for this program as the money is leached out of the economy to pay that money back with interest.

    Washington is focused on micro-economics instead of macro-economics. Is is contributing to a tragic economic future rather than a productive one. Fortunately we can individually choose to do better for ourselves by listening to the good advice we learn from this source and others, but we all could do so much better without these poor decisions by the government.

  7. Rick Beagle says:

    “But in the end what is even worse is that the government is not giving anybody anything. It is borrowing money it doesn’t have and lending it to us.”

    So, two (unwarranted) wars, tax decreases for the wealthiest, deregulation, unwinding of depression era finance laws, and the expansion of the federal government under Republican rule was focusing on the macroeconomics and it didn’t drive up a debt, crash the US economy, or let big business make a mockery of our laws? Don’t even get me started at the state and local level.

    We are on the ledge of a depression and to the Democrats credit they did exactly what worked before. The insane part of this story, the Republicans complaints in the 1930’s were exactly the same as they are today. At least someone learned from history, but not the folks on this site apparently….

    I am a fiscally conservative Democrat, and I am sure that surprises you, so let me paint you an analogy to illustrate my support on this issue. The house is on fire. Are you someone helping the situation by hooking up hoses, providing a meal, a warm blanket, and shelter, or are you sitting in the background making a fuss about how much water we are using? I do not disagree that we are spending a great deal of money, but historically, this is the right course of action over the long view.

    Peace.
    Rick Beagle

  8. lurker carl says:

    About your analogy, Rick, there is no water. It was used up the day before to wash the new car and water the new lawn around the burning house. And everything in the whole country is burning, not just one house. If someone throws enough money on the fire, I suppose you can smother it.

  9. Rick, I appreciate your concern for helping people and am not one for debate, but let me point out a couple of things worth considering.

    You said, “Are you someone helping the situation by hooking up hoses, providing a meal, a warm blanket, and shelter, or are you sitting in the background making a fuss about how much water we are using? I do not disagree that we are spending a great deal of money, but historically, this is the right course of action over the long view.”

    As someone who has a degree in history I can tell you that this is not proven by history. And I am definitely not a Republican either. The cash for clunkers program, as are most of the other approaches being used now are counter productive. They make things worse in the long term for the benefit of what looks like short term gain (although even in the short term getting people to buy what they cannot afford is not wise and the affect of the current financial situation has only brought people from negative savings to saving 7% which is still not adequate). Both political parties act in such ways for their own political goals, not for the good of the country, although probably from lack of competence rather than evil motives.

    There are many things that could and should be done which would really help. All of them would relate to making the country more productive so that people could buy out of their abundance, not through going into great debt to buy what they cannot afford.

    For example, how about extending unemployment plus financial aid to unemployed people who go to school to learn one of the trades that are vastly short of workers. Even with the unemployment situation today there are vast numbers of jobs with no applicants.

    There is a growing shortage of nurses for example that is even now leaving many elderly and disabled not getting the services they need because there is no one to work. I have had to deal with this personally because we have a handicapped son and have spent many a night caring for him and going without sleep just because none of the nursing services can find enough help.

    Just because people don’t want to throw gasoline on the burning house doesn’t mean they do not want to help put out the fire.

  10. Rick Beagle says:

    James,

    I like your ideas, and strongly suggest that you talk to your representatives about it!

    As for your degree in history, what was your specialty? I am guessing that you did not specialize in the economic policies of the Great Depression? I sure as heck didn’t, but thank goodness for libraries and the internet! There are a number of articles and books on the time frame, and I find it intriguing at how similar the debates were during that time frame.

    But to answer your criticism directly, the Cash for Clunkers does not necessarily provide long term stimulus for the economy, but from a manufacturing perspective, it clears out a lot of old inventory (in a lot of respects). It is my sincere hope that it allows the auto industry a clean slate so that they can compete again. Whether they will take the money and reinvest in their work force and their products remains to be seen, but I hope they will (the cynic in me says we will hear about big bonuses paid….)

    However, the CfC is but one of the first elements of the Stimulus Plan with longer term solutions still set to happen. It is like looking at the neighbor who turned on his little garden hose, and ignoring the multitude of Fire Trucks all coming up the street (my neighbor’s house burned a couple of months ago, hence the analogy (no on was hurt)). This is a “cumulative” fight, and picking apart every element and viewing it in a vacuum will end up with a lot of cut and pasted comments.

    This is a great program doing exactly what it was supposed to do (try to save our manufacturing industries).

    Peace.
    Rick Beagle

  11. Rick Beagle says:

    “About your analogy, Rick, there is no water. It was used up the day before to wash the new car and water the new lawn around the burning house. And everything in the whole country is burning, not just one house. If someone throws enough money on the fire, I suppose you can smother it.”

    Touche, and if I remember my history correctly we ended the Great Depression by our massive expenditures during WW2. It would appear that a lot of money (and blood) does indeed put out fires. Since I’m not in the mood for WW3, how about we give some big sacks of money a try first? Who the heck cares if the money is stamped: “made in China”? Just don’t let your kids chew on the bills….

    Peace.
    Rick

  12. dwhite2762 says:

    In my town (very, very conservative), the cash for clunkers was a big success in that it saved a couple of dealerships and some peoples jobs. I have read that it saved some peoples jobs in TN and Detroit as well. So, the program worked. As for the environment, it takes a lot of resources to build a car, so purchasing a new car should be done very infrequently. We purchased a small truck from a neighbor without any interest. We paid ~300.00 more than they were asking for the ability to make payments to them (and for their trust). It gets great gas mileage and is rated pretty good in emissions. I am glad that the program worked out well. I am glad that we could save jobs. Not everything that the government does is bad.

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