Friday, August 7, 2009

The Biggest Clunker of All

As I write this, the curiously-named new federal program, “Cash for Clunkers” or CARS (CAR Allowance Rebate System) finds itself lauded as a success by elected officials who are busily pushing it down the street, pretending they are leading the pack in the Indy 500 of economic recovery and environmental responsibility. This program is such a gas guzzler it's already run dry and pulled up to the pump for a refill.

During a severe economic downturn peppered with high unemployment, foreclosure and overextended credit, who decided that the purchase of a big ticket item like a new car should top the list of fiscally responsible moves made by a typical member of the American public?

Who codified the plan’s ridiculous definition of a “clunker” which excludes most real clunkers and results in perfectly good, well-maintained and insured older cars being trashed rather than resold to people who can’t afford new cars, even with an incentive?

The official site lays out the following guidelines:

• Your vehicle must be less than 25 years old on the trade-in date [This means that it can’t be older than 1984]
• Only purchase or lease of new vehicles qualify [You can’t use your rebate to purchase a good used car that gets better mileage than the one you drive, even if the increase in gas mileage is greater than you might get in the CARS program]
• Generally, trade-in vehicles must get 18 or less MPG (some very large pick-up trucks and cargo vans have different requirements) [It’s easier to qualify for this program if you own a gas guzzling SUV or heavy truck and want to buy another SUV or heavy truck that gets marginally improved mileage; only the well-to-do can afford to pay the difference so – in many cases - we get to subsidize the sale of a new guzzler to someone who doesn’t need the help]
• Trade-in vehicles must be registered and insured continuously for the full year preceding the trade-in [Meaning that almost all of them will have been regularly serviced and cared for . . . great reliable transportation for someone who can’t afford a new car . . . yet according to the program, these vehicles will not be resold but will be scrapped]
• You don't need a voucher, dealers will apply a credit at purchase
• Program runs through Nov 1, 2009 or when the funds are exhausted, whichever comes first.
• The program requires the scrapping of your eligible trade-in vehicle, and that the dealer disclose to you an estimate of the scrap value of your trade-in. The scrap value, however minimal, will be in addition to the rebate, and not in place of the rebate. [This means that you’d be an idiot to apply for this program with a vehicle worth more than $3,500 because no dealer who can’t resell your car and must scrap it is going to pay you one red cent more than the government gives him]

Various results are expected and none of them seem to have been realized. Supposedly the program will 1) Stimulate the economy, 2) Improve the environment, 3) Take inefficient “clunkers” off the road.

The “success” of the program is the result of artificial stimulation in the form of federal money rebates. There’s no denying that a small percentage of people have taken advantage of the promotion to trade in older cars and get a new one. But many of these people would have purchased a new car anyway at full price a month or two down the road as the economy or their job situation improved. When the incentives go away, so will many of the buyers. And the opportunity is an impossibility for anybody who can’t make up the difference between the rebate and financing/insurance/fees associated with a new car. You can’t turn in your “clunker” and purchase a more fuel efficient used car for less money.

The slight improvement in fuel efficiency and mileage on the small percentage of cars sold will make almost no impact at all. The program doesn’t help Americans replace REAL clunkers – older cars that either don’t qualify for the program – and poor and lower middle class vehicle owners who can’t afford the program will continue to drive the beaters they CAN afford. These cars will still be on the road for years to come. Vehicles that qualify for the program must have been owned, serviced, insured and tested for at least a year before being surrendered. These are NOT clunkers but they will be trashed and sent to the junkyard.

Because of the foregoing, the program does NOT take true clunkers off the road.

It doesn’t help vehicle owners who really need the help. It doesn’t steer buyers to truly economic cars. It doesn’t distinguish between millionaires and those barely making it.

Seen on the web:

“People who are driving around beaters with terrible gas mileage are not doing it because they choose to. They can’t afford a cash purchase or monthly financing necessary to get a new car. A $3,500 incentive will not enable them to afford one. The incentive is probably worth only $70/month over a 5 year period on a car loan; guess where the rest is coming from?”

“I am on a fixed income with a 1990 F150 that I pay $100.00 a month on. Why should I buy a truck that will cost me $300.00 a month, which I cannot afford? According to this plan, they will give me cash so I can walk."

“We are creating an artificial demand for a product. When the incentives disappear, the pendulum will swing the other way resulting in a lack of demand. Stupid, Stupid, Stupid. Oh and I sure am glad that they are using my tax dollars to buy other people NEW automobiles when I don’t even buy NEW automobiles myself.”

“I don’t plan to participate in this plan and buy a new car; I'm going to wait for 6 months and then I'll buy a slightly used 6-month-old car, because many of the people of low or moderate income who are participating in the program won't be able to make their car payments without a job, and all these cars are going to be repossessed.”

"And so it goes. One program after another that leaves out people who are struggling and barely getting by. I understand that helping people buy cars helps the workers who make the cars and all the ancillary jobs associated with that. But I’m not at all convinced that the government is going to spend us out of this recession."

“Many people who qualify were already going to buy (no gain) or probably won’t or can’t take advantage of it. People who would take part in it don’t qualify. That’s why it’s stupid.”

Pretty much says it all.

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