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Cash for Clunkers - Good or Bad Idea?

4291 messages,  Last post on Jan 05, 2013 at 9:30 AM

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Messages Page 429 of 430

#4273 of 4291 Re: C4C ruined things for new driver. [bgmnumber1] by fushigi

Oct 12, 2011 (8:16 am)

I don't see how C4C impacts your ability to afford a vehicle. It was a one-time program that removed around 700K cars from the market. There are approximately 250 million vehicles in the US so at best C4C shrank the car market by not even 0.3%.
 
The struggling economy was and continues to be a far larger problem for car sales. When the economy tanked, new car sales dropped from around 16.5 million cars/year to around 10.5 million. It still hasn't recovered though sales are slowly climbing. And for almost every new car that isn't sold, a used car doesn't enter the market so the used car market shrank as well.
 
A smaller used car market leads to higher used car prices. Supply & demand is at work. I'd say there's also a number of people who are simply holding on to their cars for longer because cars are made better.
 
The problem is made worse by the tightened credit market. People who have good, even excellent, credit ratings are having problems getting approved for car loans as things like debt-to-income ratios are being weighted more heavily. The banks are not willing to assume as much risk as they were a few years back. And frankly, that's a good thing as it helps to keep some consumers from making poor financial decisions by buying cars they can't truly afford (ditto the housing market).
 
As far as C4C adding to the deficit, that's complicated. For instance, reducing the emissions from the clunkers has health benefits. Those benefits might not manifest in obvious ways but in general there are fewer carcinogens in the air. That may lead to reduced health problems later in life which can lead to lower medicare costs thereby saving government & consumer money. This is unfortunately near impossible to measure.
 
Likewise, C4C helped keep some auto plants open. Open plants = employed workers = income tax revenue + trickle down income from employee spending. So some C4C costs were quickly recovered simply by having autoworkers stay employed. Along those lines, auto dealers were able to stay in business as were supporting industries and even places like restaurants & small shops benefit from employed people who can continue to afford to eat out & buy goods.
 
Finally, reducing gas usage positively impacts our trade deficit.
 
Honestly, other subsidy programs pay billions of dollars every year to companies and no one makes a fuss over it. http://www.ers.usda.gov/briefing/farmincome/govtpaybyfarmtype.htm shows the government has been paying $12-24 billion every single year in farm subsidies with the majority going to commercial, not family, farms. That's far more of a problem for the deficit than a single, brief $3-4 billion program.

#4274 of 4291 Re: C4C ruined things for new driver. [fushigi] by hpmctorque

Oct 12, 2011 (2:41 pm)

Replying to: fushigi (Oct 12, 2011 8:16 am)
"... C4C shrank the car market by not even 0.3%."
 
That may be true, but the more relevant ratio is the usable cars removed from service versus the number of cars for sale. That number would be some multiple of 0.3%. Also, the reduction of supply hurt the low income people the most. The fact that there are worse programs than C4C is a weak argument in support of C4C.

#4275 of 4291 Re: C4C ruined things for new driver. [hpmctorque] by fushigi

Oct 13, 2011 (6:57 am)

Replying to: hpmctorque (Oct 12, 2011 2:41 pm)
OK, I've heard that as many as 50 million cars are sold each year. Sorry, I don't have a link to back that up so if you can find a better number with a source, let me know. 50MM makes sense, though, as it would include the 10-12 million new cars + 40 or so million used, which sounds reasonable given the 250 million pool of vehicles and that some vehicles will be sold more often than once a year.
 
700K out of 50 million is almost 1.5%. Bigger but still a far smaller percent of the market than, for instance, we've seen new car sales drop by. If I'm misremembering and the annual sales rate is closer to 40MM then C4C was still under 2% of one year's annual sales.
 
I don't buy the argument that removing clunkers hurt low income people. Clunkers may have been cheap to buy but they are more expensive to operate. By the program's definition they get relatively poor fuel economy so annual fuel costs will be higher. Also, clunkers in general are older cars which are more prone to breakdowns and potentially costly repairs. IMO the cheap up front cost is balanced or outweighed by the higher operating costs.
 
Owning a vehicle is a TCO issue, not a purchase price issue. You may look at removing a $1500 car from the market as depriving a low income person a vehicle they can afford, but I'd argue that what they can afford to buy isn't necessarily something they can afford to keep on the road. Or, even, keep _safely_ on the road.
 
As for the subsidy issue, it depends on where your priorities are I suppose. I'm against giving out my tax dollars to companies with no expectation of a return on the expense. Food prices are not lower or more stable due to farm subsidies.
 
When looking at the budget I would tend to target repeated expenses v. one-time costs. C4C = one-time; farm, foreign aid, & most other subsidies are repeating and cost us billions and billions every single year. In terms of "more evil" or "less evil" C4C is way less evil than many things our government does and I would prefer to concentrate on the more evil things first.
 
And C4C was not a corporate handout. It was directed at consumers to encourage them to buy, much like we get a mortgage interest deduction to encourage people to buy homes. Another example would be tax credits for doing energy star upgrades to the home.
 
Anyway, this isn't an argument in favor of C4C, I'm just saying that C4C's impact on the automotive industry & government deficit weren't really all that significant. There are far worse ways that government funds are being used and I'd rather those be addressed. Sadly, few in Washington on either side of the aisle seem to care about much beyond the next election cycle.

#4276 of 4291 Re: C4C ruined things for new driver. [fushigi] by andre1969

Oct 13, 2011 (10:00 am)

Replying to: fushigi (Oct 13, 2011 6:57 am)
Owning a vehicle is a TCO issue, not a purchase price issue. You may look at removing a $1500 car from the market as depriving a low income person a vehicle they can afford, but I'd argue that what they can afford to buy isn't necessarily something they can afford to keep on the road. Or, even, keep _safely_ on the road.
 
True, but to a low-income person who can't qualify for a car loan, or save up a big down payment for a newer, more reliable, fuel efficient car, TCO is irrelevant. They're going to buy whatever they can afford, sink money into it when it breaks, pay the higher fuel bill, and if any repair becomes too cost-prohibitive, junk the car and then repeat the process all over again. In the long run they'll probably pay more for a succession of clunkers than if they had bought one reliable, efficient car to begin with, but unfortunately, that's how the "system" works, and it's unfairly stacked against poor people.
 
In a similar note, there's a trashy motel along US Route 3 in Maryland, not too far from where I live. Total dive. You can rent a room there for around $750 per month. You could also rent a much nicer room in a private residence for a lot less than that, and even some small apartments wouldn't cost much more. But the sad fact is that if you're poor, you're not going to qualify to live in that apartment, unless you somehow get on Section 8. And nobody's going to rent you a room in their private home if you seem questionable. But at the ol' roach motel, if you can scrape together $750 each month, it gets a roof over your head. Another case of the poor ultimately paying more, for a commodity of lesser value.

#4277 of 4291 Back from the dead... by ateixeira

Oct 13, 2011 (10:09 am)

Wow, this thread was dormant for, what, 2 years? Now it's active suddenly?
 
Who wants a C4C v2.0?

#4278 of 4291 Re: Back from the dead... [ateixeira] by andre1969

Oct 13, 2011 (10:13 am)

Replying to: ateixeira (Oct 13, 2011 10:09 am)
Who wants a C4C v2.0?
 
Considering how badly my '85 Silverado has deteriorated in the past couple years, I'd be tempted!

#4279 of 4291 Re: C4C ruined things for new driver. [fushigi] by hpmctorque

Oct 13, 2011 (12:59 pm)

Replying to: fushigi (Oct 13, 2011 6:57 am)
~40,000 used car sales per year seems right, so we're in agree ment on the numbers.
 
I understand your arguments, which represents the pro-C4C point of view, but I'm of the persuasion that individuals are better judges of when useful assets should be retired than the federal government. Individuals can take the factors that you mentioned, and, more often than not, make a more informed decision on what's best for them. Pollution and safety rules and inspections address those particular issues.
 
I agree with you that there are subsidies that are more harmful than C4C. In terms of one-time versus repeated budget expenses, however, most European countries have had numerous C4C programs. Once the taboo is broken, it's relatively easy for politicians to enact subsequent ones.

#4280 of 4291 Re: C4C ruined things for new driver. [hpmctorque] by berri

Oct 13, 2011 (5:07 pm)

Replying to: hpmctorque (Oct 13, 2011 12:59 pm)
I still think C4C was primarily a give to the auto dealerships. It increased their sales volume and their margins. Of course, that all came at the expense of the poor car buying public. Car prices are distorted right now because of remaining issues from the Tsunami. It is always about supply and demand. C4C interferred with the natural workings of that basic economic premise.
 
I'll go you one further and suggest that the gov should also stop using the tax code as an economic preference tool.

#4281 of 4291 Re: C4C ruined things for new driver. [berri] by explorerx4

Oct 13, 2011 (6:44 pm)

Replying to: berri (Oct 13, 2011 5:07 pm)
Just after 9-11, car sales dropped down to nothing, then GM started their 'Get America Rolling' campaign.
It sparked car sales. C4C did the same thing.
You are not recognizing the psychological aspect of auto sales.
C4C was an informal bailout for auto dealerships. but it worked.

Messages Page 429 of 430

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