Cash for Clunkers Round-up – A Waste for Taxpayers?

September 29, 2009 by  
Filed under Economics

cash_clunkersNow that the real data has come in, it’s looking like the Cash for Clunkers program was mostly a waste of taxpayer dollars. Consider the following:

1.  According to this report from Edmunds, sales of new vehicles in September 2009 fell off a cliff, dropping 41% from August 2009 and down 23% from September 2008. This shows that the primary sales effect of the “Cash for Clunkers” program was to harvest sales that would otherwise have occurred later in the year and compress them into an earlier time period. Gosh, what a boon to car dealers. I hope their glorious August was worth the September hangover.

2.  An economic analysis by Citigroup concluded that buyers received little or no financial benefit from the Cash for Clunkers programs because the $4500 government credit essentially replaced discounts and incentives that buyers would have received from the dealers themselves.

3.  Foreign car companies did better than GM, Ford or Chrysler in sales of new cars under the clunkers program. Brilliant. The taxpayers own most of GM but our government feeds the competition.

4.  The dramatic drop in sales in September also supports an argument that many economists have about Cash for Clunkers: The buyers were wealthier folks who would have purchased new cars anyway. We the taxpayers just helped them out. The less wealthy are still driving their clunkers because they couldn’t qualify for a car loan. That’s probably a good thing.

The hard truth is that Cash for Clunkers was primarily a multi-billion dollar payment transfer program in which the transferor was the U.S. Treasury and the transferees/beneficiaries were car dealers who were temporarily relieved of the burden of offering improved buyer discounts and incentives.

There was a presumed societal benefit in exchanging less fuel efficient vehicles for more fuel efficient vehicles. But buyers paid a big price for that benefit by swapping their paid-for vehicles for another car loan and new car depreciation hit. Now car dealers and manufacturers are hoping that Cash for Clunkers has jump-started a trend that will cause even more consumers to return to their borrow and spend ways. That would be unfortunate.

Wouldn’t it be refreshing if our national economy could purge itself of such dependency on new car sales?

Photo credit: kodiax 2


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22 Responses to “Cash for Clunkers Round-up – A Waste for Taxpayers?”
  1. lurker carl says:

    It would be even more refreshing if the bulk of new vehicles sold were actually manufactured in the US.

  2. It’s refreshing that my PERSONAL economy has purged itself of such dependency on new car sales!

    Another great post MR. TML!

  3. Rick Beagle says:

    TML isn’t known for doing a lot of research prior to posting his articles. He leaves those of us in the comment section to help with that.

    Republicans killed the aspect of the bill that required only American made cars be purchased – John McCain was responsible for spearheading the push to remove all the “protectionist” measures in the bill. Yeppers, the original bill had protection for American made products in it.

    Ironic that the Right would strip it from the bill and then complain about it….

    As to the Cash for Clunkers being a failure, again only the right wing seem to think so. We are starting to see some sputtering in our economic engine, which is what the stimulus bill was designed to do(you do remember the point of the cash for clunkers right?). The original plan was to help car dealers and their dependent manufacturing elements to clear out their inventory in an effort to encourage new growth. For those of you familiar with logging, and forest management – you understand the concept. You may not like the solutions that were provided, but there is no denying that we are starting to see some modest growth.

    Again, I would dearly love to provide links for this, but you folk’s don’t like to read from ‘dem evil “liberal sites”.

    TML congrats on another piece of fiction.

    Peace.
    Rick Beagle

  4. Rick Beagle says:

    Oh and btw, the sales of cars did not fall off a cliff. From your own link:

    “The unusual sales pattern that occurred during Cash for Clunkers will make for some odd month-to-month and year-to-year comparisons,” commented Michelle Krebs, Senior Analyst for Edmunds.com.

    In her analysis for Edmunds’ AutoObserver.com, Krebs reported, “This September is the opposite of last September. The first half of September 2008 — before the Lehman Brothers collapse — was stronger; sales dried up in the second half. This September sales were weak early in the month due to the Cash for Clunkers hangover and now are reaching a more normal — at least for these times — equilibrium. So, the trajectory of sales is more positive than a year ago.”

    Way to fail at reading comprehension.
    Peace.
    Rick Beagle

  5. lurker carl says:

    Well, it’s one month later and dealers are STILL waiting on government reimbursement for all the clunkers traded in. The same government Rick wants to administer health care. Egads.

    On the same note, many “American” cars are now have most of their components manufactured in Asia and assembled in Mexico and Canada. Some of the top selling foreign cars not only contain more American-made components but are assembled here as well. The line is rather fuzzy.

  6. Rick Beagle says:

    “The same government Rick wants to administer health care. Egads.”

    hmm… the current providers give us this:

    http://abclocal.go.com/ktrk/story?section=news/local&id=7034143

    Dare to dream of something better.

  7. lurker carl says:

    Free health care provided for by volunteers via a non-profit organization, what could be better? Free clinics are everywhere, a nationalized program would eliminate them.

  8. cjbr549 says:

    The move to entice people to more fuel efficient cars was mainly added to appease the environmental folks and was sold as reducing fuel consumption and emissions. One assumption that has to be made for that is that the new cars would be driven the same number of miles as the “clunkers”. I expect that that assumption is faulty and that the older cars were not driven as much as their new replacements will be. I am waiting with bated breath for someone to do a study on that.
    Also for Rick, correlation does not equal causation. You suggest that the recovery (which is still in its infancy) is due at least in some part to the Cash for Clunkers. That can’t be proven. What is evident is that sales were stolen from the future by the program. The fact that last Septembers sales were “trending downward” and this Septembers were “trending upward” is irrelevant. Sales were down this year on a year over year basis. That means either the overall sales picture is down or sales were moved forward into August. Looking at the sales numbers starting at the beginning of the program till maybe the end of the year and comparing to last year would probably give you a better look at the sales increase (if in fact there will be one), but you still can’t separate whether it was due to the stimulus or just a normal increase. IE, you can talk smack all you want, but you can’t prove it one way or another.

  9. Rick Beagle says:

    CJBR549,

    “The fact that last Septembers sales were “trending downward” and this Septembers were “trending upward” is irrelevant.”

    How do you figure that comment to be irrelevant? When the premise of the sentence alludes to disaster at the hands of CC, that sentence would seem to indicate that the claim was erroneous?

    As to your babbling about proving that the stimulus is having an impact, when you see A done with the intent of B occurring,and then B actually occurring, I’m comfortable with the belief that A actually did what they said it would do. Of course when you have economists backing that belief up (aka Dr. Paul Krugman, and others)with their data its just icing on the cake.

    But in the world of politics it really doesn’t matter. A year ago under Republican rule the economy was in a free fall and we were all talking about a return visit to the Great Depression. The government jumps into action and eight months later under Democratic rule we are starting to see modest growth (including in the auto industry). Flap your gums all you want, but at the end of the day this is what people will remember:

    End of 2008 people felt no hope.
    End of 2009 people aren’t quite so hopeless.

    And while people may argue over whether the massive efforts of the Democrats were the catalyst for this positive change, there is no doubt that they we were trying and trying mightily to fix the disaster. But there is no argument whatsoever with regards to the Republicans- they did NOTHING.

    You may disagree with the Dems philosophically, but there is no doubt that they are trying to lead our country in a positive direction. Hopefully the modest success with the economy will encourage more successes in areas such as health care.

    Peace.
    Rick Beagle

  10. Rick Beagle says:

    Lurker Carl,

    “Free health care provided for by volunteers via a non-profit organization, what could be better? Free clinics are everywhere, a nationalized program would eliminate them.”

    You are mistaken, a nationalized program would eliminate the NEED for them. Which was the point.

  11. cjbr549 says:

    I still think trending in one month for car sales is irrelevant. The relevant portion to TML’s argument is that it was down. As for my “babbling”, I never disputed that the stimulus didn’t help the economy, although in my opinion it was the act of doing something to inspire confidence that acutely did the helping. Only a fraction of the actual spending has happened up to now, so saying the stimulus is stimulating anything other than confidence is a bit of a stretch. My dispute was that the cash for clunkers program actually did something worthwhile. Meaning that the benefits outweigh the tax burden we have to face for paying for it. My opinion right now reflects the same as TMLs, essentially that it just paid most of the participants to move their spending decision to the left, not actually got them to spend something they weren’t going to in the next year or so anyway. I certainly agree with you about the politics of it. The left will spin it as great, right will spin it as evil and the middle will get stuck with the bill.

  12. lurker carl says:

    Rick, please tell us all about the new car you bought last month.

  13. Rick Beagle says:

    Lurker,

    I saved my dollars and am looking forward to my first electric car in 2010 (I hope at least).

    Peace.
    Rick Beagle

  14. Rick Beagle says:

    “The relevant portion to TML’s argument is that it was down.”

    No. The relevant portion of TML’s argument was that CC did nothing to improve car sales, and that the only sales were those that would have taken place later in the year or early next year? And while I agree that trending data from one month is probably not a reliable process, the data suggested something other than the premise of TML’s article or at least does little to support the argument in any reliable or substantive manner.

    Which brings me to my point, the Stimulus Bill is having a positive impact on the economy and part of that bill was CC. As to your comments about how much we will have to pay, where was your voice when our President started not one, but two wars and then offered trillions in tax rebates for the wealthiest amongst us?

    You folks do realize that the price tag on those little tax breaks were in the trillion of dollars? Who do you think will have to pay that price tag?

    At least this time, we are spending the money on our people and investing in our future. CC removed a lot of pollution off the streets. We are now starting to trend green and with report after report showing that we are in for some significant problems over the next decade, it was a worthy first step.

    Peace.
    Rick Beagle

  15. lurker carl says:

    Stop drinking the Koolaid, Rick. It makes you believe everything you read.

  16. Rick Beagle says:

    Lurker,

    Hmm. I see you have given up on any pretense of a reasonable or well thought out response in favor of the mind boggling absurd sound bites. Care to put something more akin to your next posting, or should I just ignore you as another wing nut who have given over his brain (and soul) to Fox News?

    BTW you can watch Fox – GLEE rocks.
    Peace.
    Rick Beagle

  17. MasterPo says:

    Rick,

    Let me know the moment you meet a previously unemployed person who now has a great high paying perminent job with good benefits in the “green” industry.

    Never happen.

    Bill Clinto said the same things when he signed a major air polution bill. He acknowledged the costs and burden on business but said it would create thousands of new jobs.

    Where?

    In your whole life have you ever met anyone who’s primary mode of earning a living was from the pollution control business? Anyone who was maybe working in Wendy’s before Clinton signed the law and now is a successful pollution control engineer or something like that?

    Never happen.

  18. Rick Beagle says:

    MasterPo.

    Hmm…. Is that really the argument that you came up with? You think that green jobs are going to help someone working at Wendy’s get a high paying job or “thought” that the liberals suggested such a absurd comment?

    You need a reality check.

    And I live up in the NW part of the country, where there are a LARGE population of people making good money in green paying jobs. Chances are, you do too.

    Peace.
    Rick Beagle

  19. MasterPo says:

    Well Ricky, isn’t that the purpose of “investing” in “green jobs”? To make new opportunities for people otherwise relegated to the min wage/no hope life??

    If not, then please tell me what the purpose of creating all these new and fabulous high paying career “green jobs” is all about if not to get un-employed and under employed people to be more self sufficient??

    • Rick Beagle says:

      I don’t know Po, maybe it’s a desire to open up opportunities for growth in out economy that ends the reliance and conflicts associated with the dependency on a finite resource? Perhaps it is allowing Americans to pursue avenues, thoughts, and revenue streams that were staunched and stifled by previous administrations?

      Again, I am not sure what you are smoking, but no Liberal has ever suggested that people manning the fryers at Wendy’s would somehow magically be given high paying jobs in the green sector? And to be frank, it is stupidity like that from you that make me wonder why you even bother? If you are going to represent your views, at least be respectful enough to formulate some thing other than a continuous diet of fictitious and overtly absurd comments.

      Providing opportunities for our progeny should be something that we encourage and embrace. Why you would deride ideas that foster growth is indicative of just how many brain cells that “kool aid” of yours has killed. You need to go easy on that stuff, you dont seem to have a lot left.

      Peace.
      Rick Beagle

  20. MasterPo says:

    So Cap&Tax is going to put thousands of people out of work and cost the average American $1,500 to $3,000 more per year, yet “all” these alledged “green jobs” that will come from it won’t help the people out put out of work, the people out of work now, and those with jobs barely able to cover monthly bills?

    Sounds like an awesome plan!!!

    Where do I sign up?

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