Tuesday, September 1, 2009

Cash For Clunkers

Cash for Clunkers - Clunkers on Death RowImage by latemodelresto via Flickr

Earlier this year, the Obama administration made the US taxpayers the major shareholders of two of the three "Big Three" automakers by bailing out General Motors and Chrysler. Ford decided it did not want to subject itself to the government conditions and decided to go it alone. In an effort to stimulate the auto industry, the government then implemented the "Cash For Clunkers" program.

The government's "Cash For Clunkers" program ended a week ago to mixed reviews. The program was designed to provide funds to encourage consumers to trade in their gas guzzlers for more efficient automobiles. The initial allocation of $1 billion was gone the first week. After an additional $2 billion was infused into the program it lasted another couple weeks.

So for the goal of getting people into the auto show rooms and buying new cars, it had a level of success. Unfortunately, the government has been slow in reimbursing dealers for the deals that have been made. Some dealers actually stopped participating because of the slow response of the government.

Auto manufacturers have started releasing their sales figures for the month of August, and initial results of the success of the program are rolling in. Ironically, the two recipients of government bailouts continued to show sales declines over the prior year. Ford, Toyota, and Honda each showed increases over the prior year, with Ford leading the way with a 17% increase in sales.

So the big winners in the "Cash For Clunkers" program are the people who were able to take advantage of the program by having additional dollars towards a new car. In addition, Ford, Honda, and Toyota were the industry winners.

The losers are Chrysler, General Motors, the government, and the US taxpayers. The taxpayers are on the hook for bailing out GM and Chrysler and for funding a program that did nothing for the two companies that the taxpayers basically own. The other losers are those people who would have been willing to buy a used car but will see used car prices rising because of all the "clunkers" taken off the market reducing supply.

The cynic in me believes that it is no coincindence that the two auto manufacturers who received bailout money are the two biggest losers in the "Cash For Clunkers" program.
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  1. Good luck trying to figure this one out. I don't think we'll know the truth on this until quite a few years down the road. I suspect the real winners are those who owned "clunkers" worth less than $4500 who were planning to buy a new car anyway. They got a bonus on their trade-in. I suppose collectively, we may all benefit somehow from the net increase in MPG's of the cars currently on the road and any indirect stimulus to the economy as a result of the money spent on new vehicles that would not ordinarily have been spent. But who really knows those numbers?

    Time will tell!

    A thought provoking post!

  2. all I know is nothing they are doing has stimulated me at all, agitated maybe, but not stimulated.



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