I Was Wrong On Cash For Clunkers

I have to apologize. I thought that the Cash For Clunkers program would fail because I wrongly believed that people wouldn't just run out, in the middle of a recession, and take on new debt and new monthly payments, new higher insurance rates, and new vehicle taxes by trading in their inexpensive and old, yet running, vehicles for a new one that might get them 4 miles-per-gallon over their old clunker's mileage. I guess I was just dead wrong. I guess I was wrong in thinking that people would have learned their "debt" lessons of the past year-and-a-half and kept their money for the important things in life like paying off their mortgages or their credit card bills. But, I guess I was stupid. The Congress was right and they knew that people just couldn't help themselves when the government decides to almost dump money out of helicopters over their heads. Recession? What recession? Lose my job? You've got to be kidding me?

But, the program was so wildly successful that the 250,000 clunkers are now off the road in just 4 days; using up a billion dollars in taxpayer money. Of course, the intelligentsia of our Democratic Congress thought this program would really take up to 4 months to eat up a billion dollars. Boy, were they wrong! I guess, based on experience, they thought this program would be as slow as the Stimulus Package that they had passed, earlier this year.

When you think about, you've really got to wonder what all these clunker-traders are really smoking.

First off, I would hope that the car that they are trading in has a resale value that is "less" than $3,500 or, really, they are getting screwed. Of course, this is if the new car that they are buying is 4 miles per gallon better than the old one that they are clunking. A resale value of $4500 would have to apply if there is a 10 mile-per-gallon differential. The $3500 or $4500 is all they are going to get on their trade-in because, under the conditions of the Cash For Clunkers program, the dealers are legally obligated to destroy all the trade-ins; once the sale is done. They will not be able to resell them and get any profit from the car that is being traded in. Of course, the "clunkier" the car that you are trading in, the better off you are in making the deal. After all, if your piece of s**t is only worth $1000 dollars on a normal trade, you just got a $2500 or $3500 gift from Uncle Sam; depending on the mileage differential. If your car was worth $3500 or more in value as a trade, you literally got screwed by our Congress.

Secondly, I would hope that these "new car" owners are prepared for the future shock of all the new costs that are associated with their new, government-subsidized car. That $3500 or $4500 clunker that they just traded in was probably paid for. My guess is that the new car will put these owners in hock for monthly payments that are in excess of $250 a month for the next 5 years. And, then there's all the taxes and the higher insurance rates. Didn't we get into this recession because people took on too much debt?

As a result of how successful this program has been, our Congress is now in the process of allocating another $2 billion to extend the program. In effect, and assuming they get Senate approval for another $2 billion extension, there will be a total of 750,000 old and perfectly running cars that will be destroyed and taken off the road as a result of this program. The impact of that fact won't be known for awhile. But, our Congress has unwittingly created a reduced inventory shortage of nearly a million used cars in America. Given the law of supply and demand, this newly reduced supply means that the average used car will be more costly in the future. This is inflationary and the people most hurt by this will be the poor who can't hardly afford to buy a new, fuel efficient car. But, thank God, we saved the planet by shearing off 4 miles-per-gallon on almost 1 out of every 240 cars on the road. Never mind the fact that first-time new car sales in both China and India ate up the CO2 savings of this country's Cash for Clunkers program in, probably, just a few hours of one day.

As I said before in this blog, the Cash For Clunkers is bogus program. Much of what is being done will just be a benefit to those who were already going to buy a new car. What's worse, it may have pushed people into irresponsibly buying a new car that they really cannot afford. Further, the amount of CO2 savings is minimal' at best. And, lastly, the poor of America will ultimately pay for this program in higher used car pricing in the future. Only people, like the Democrats in Congress, who don't understand business, would do something so stupid and, then, repeat their own stupidity with another $2 billion program.