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Cash for Clunkers - Good or Bad Idea?

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  • nippononlynippononly SF Bay AreaPosts: 12,726
    appeared on the morning news today. I listened in wonderment as the manager at Honda of Fremont reported that they sold 153 cars in the first 7 days of C4C!!!!! They were down to their last 3 Civics or something, and this is a Honda dealership that is about 4 square MILES in size.

    My local Honda dealer has been moving the natural gas Civics out to the front as the gas Civics have dwindled away.....I guess the CNG Civics just aren't very popular even with a program like this.

    But 153 cars!! And they were looking forward eagerly to the renewed volume that the extra $2 billion should bring. They have some incentives from Honda that are good until Labor Day, so this will be the all-time king of bonanza sales periods for them.

    2014 Mini Cooper (stick shift of course), 2016 Camry hybrid, 2009 Outback Sport 5-spd (keeping the stick alive)

  • kdhspyderkdhspyder Posts: 7,160
    A small portion of their influential constituents demanded. Every opinion poll I've seen on the subject shows that the majority of the public is against this program.

    FYP

    And for good reason-they're getting worked over coming, and going:

    http://www.edmunds.com/help/about/press/154606/article.html

    Like I predicted. Not that it took anything beyond a very basic knowledge of economics.


    Thank you for the confirmation. This shows that the plan is working exactly as planned.
  • kdhspyderkdhspyder Posts: 7,160
    The only 'problem' is that this pace can't continue because none of the vehicle makers was ramped up enough to supply this voracious demand in such a short time. The pace has to slow simply because the new vehicles are disappearing and it takes a good 4 weeks to restock. It takes 8+ weeks to bump up production and shipments.

    Most dealers will have to do without inventory for most of August so this will dampen the numbers.
  • stephen987stephen987 Posts: 1,994
    True--and then we may see another glut, as the program will be out of money again by the time those cars reach the showroom.

    I think calendar year 2009 will prove to have been a very stressful one for those in the car business--feast or famine, on a weekly basis.
  • I think there's a fundamental point being missed here, and it centers around the very heart of our economy. One of the main principles of capitalism is that it is self-correcting. Businesses that operate unsustainable models fail, and they NEED to. The failure of a business is what drives the natural corrective forces within any industry. Too many cars being produced? Either adapt quickly to the changing demand, or fail. However, by NO means should the government create artificial demand under a false hope that a short-term gain somehow negates long-term incompetence. People are too afraid of the immediate pain that surrounds the accompanying loss of jobs that they prolong and deny the truth about these businesses. By doing so, we only make the larger issue worse.

    The simple truth is that the American auto industry is an unsustainable behemoth, engineered for the excess we were living in, and not lean enough to survive a 30-40% drop in demand. Further, they're not even capable of adapting to it, so our solution? We pump money into them to prolong their deaths. Wonderful.

    People that proclaim this as a success tout the jump in sales. What about non-subsidized sales? Have they gone up? No. Obviously the subsidies won't be around for long, and thus neither will the influx of cash currently headed toward the automakers. Even 10 billion in a SINGLE car company's pockets can only keep them afloat for ~6 months - that much was evident from last year's auto bailout money given directly to them.

    At the end of all this, we're left with the same unsustainable behemoth, and we'll all sit around and bemoan the impending downfall of our beloved automakers. "But we did C4C?!?! Wasn't that enough?" Failed. Business. Model.
  • stephen987stephen987 Posts: 1,994
    Capitalism can be self-correcting, but it isn't automatically so. The cost of entry for any new company trying to break into a highly regulated, infrastructure-intensive industry such as automobile manufacturing is so high that there are huge delays in getting in. If a behemoth like GM collapses, it could be a decade before any new player, or any combination of existing players, is fully able to take up the slack.

    What happens in that decade?

    "The long run is a misleading guide to current affairs. In the long run, we're all dead."--John Maynard Keynes (Baron Tilton), A Tract on Monetary Reform (1923).
  • Mr_ShiftrightMr_Shiftright Sonoma, CaliforniaPosts: 58,847
    The only poll publicized that I saw was Rasmussen, and it declined to release any information on who was called, how many were called, what they were asked, or what the +/- of error was.

    Can you identify the rest of the polls you saw? Do they release their polling data?

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  • stephen987stephen987 Posts: 1,994
    Hmm. Another phantom fact?
  • Mr_ShiftrightMr_Shiftright Sonoma, CaliforniaPosts: 58,847
    Well I don't know. Opinion polls can, of course, give you any answer you want, depending on how you frame the question, and who you present the question to.

    e.g. "Do you think hardworking, honest Americans should be given a helping hand in replacing their worn out, gas-guzzling cars, so that America can reduce reliance on Middle Eastern oil?"

    e.g.2 "Do you think only certain select groups of Americans should be given taxpayer's money to buy new cars?"

    You'll get opposing results from these two (admittedly exaggerated) examples, even if you ask the SAME people.

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  • Very true, however, we're in a state of highly depreciated demand. Such a market dictates that one of them SHOULD fail. If a large player failed, the rest of the manufacturers might be able to collectively meet the current demand, thus surviving on their own merit.

    I would further stress that additional (artificial) demand today only lowers demand over the coming years, and I don't see how today's automakers (assuming we don't let one fail) will fare any better with even lower demand.

    To get back to your question - in the decade following a major collapse, unemployment rises higher,many thousands of people on pensions through the collapsed find themselves without an income stream, and things feel quite unpleasant for a while. This is my point as well, however. We're so afraid of that pain that we're not doing anything to avoid this scenario, we're merely delaying it.

    The bottom line is that if a business is too large to adapt to the demand of it's own industry, then it MUST fail. Fail or be nationalized, at which point you can fail on a different schedule. I don't see where nationalizing a business to prevent it's collapse was ever one of the "functioning" principles of capitalism, however.
  • Mr_ShiftrightMr_Shiftright Sonoma, CaliforniaPosts: 58,847
    Many companies in Europe have been nationalized, saved and privatized, even auto companies.

    Capitalism is an economic system. It's not a good form of government whatsoever.

    The purpose of government is to regulate, and to protect us from the predatory abuses which may occur in business--regardless of the economic system in place.

    No economic system runs without a governor.

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  • stephen987stephen987 Posts: 1,994
    I think you're conflating two separate things--the direct bailouts of GM and Chrysler on the one hand with the Cash for Clunkers program on the other. There are other fora in which to debate the merits of the former, which I agree are somewhat questionable.

    The thing I like about Cash for Clunkers is that unline the direct bailouts it is fundamentally a measured, finite market-based response. It provides a little boost to customers, who then go out and choose from a wide array of products that meet certain socially desirable criteria. The money is trackable (if not quite as immediately trackable as NHTSA hoped), and the early results tell us that customers are (a) choosing more fuel-efficient cars, (b) buying from US companies at about the same rate as their current market share, and (c) financing those purchases either with cash, or with smaller-than-usual auto loans.

    Is it a perfect response? Of course not. We might argue, as Sens. Collins & Feinstein did, over what "socially desirable criteria" to implement, and we might wish that NHTSA's registration and reimbursement processes had gone more smoothly. Some of us might have preferred a solution that gave preference to vehicles with a certain percentage of domestic content. Others might have preferred to see smaller rebates--to more customers--or some sort of pro rata scale that might have paid more for a 16 mpg improvement (my transaction) than for one that nets only a 10 mpg improvement. Fine--let's talk about those things, certainly before we attempt to implement another version of this program.

    Should something like this become a permanent fixture in the US economy? I'd say not. But we inhabit a mixed economy, neither purely market-driven capitalism nor state-driven socialism, but containing elements of both. So this is a temporary example of the federal government intervening, for what some would regard as an acceptable tradeoff between short-term and long-term. As such, I'd say it's better than most: the spending is limited, the goals are relatively clear, there's a definite end point, and no one seems to expect that it will be renewed indefinitely. That makes it a far better use of stimulus funds than, say, purchasing GM stock.

    In some respects the "capitalism" angle is a bit of a red herring. The US economy has nearly always been a managed one in some respects, as government subsidized the major railroad companies of the 19th century, began competing actively with private utilities in the 1930s, managed the growth of the commercial airline industry in the 1930s and 40s, and funded the massive expansion of the defense and aircraft industries in the 1950s and 60s--to cite but a few examples.
    We have a poster here, by the name of kdhspyder, who is fond of saying that government and business in the US are essentially one and the same. I'd say that is a bit overblown, but to pretend that government and industry aren't cozy with each other (or haven't been for more than 150 years) would be naive.

    Unbridled capitalism is anarchy. Unbridled socialism is the death of individualism. Somewhere in between lies what passes for prosperity, the greatest good for the greatest number, a utilitarian maximum.
  • I'm not going to argue that capitalism is a good form of government. Nor am I going to debate the role of government as outlined in your reply. What we're talking about doesn't fall under "protection" from "predatory abuses" though. This is just bad and inflexible business practices, finally come home to roost.

    Let's take GM for example. We nationalize them, and immediately realize an ongoing cash drain, the same they themselves have felt. So we "restructure"them to create a viable business. The first thing we do is cut a majority of the long-running pensions, yes? I mean, that's a burden we didn't sign up for, at least not at the buying price for GM. So that's done. Now, we close a good portion of the dealerships, say another 50% or so, and a good chunk of the manufacturing. How many jobs have we cut so far? How many incomes? Neat-o. Then, if we've done things efficiently, which of course we're known for, we can some day hope that little old GM can be sold for roughly what we've paid, and the whole thing will have come off cleanly. Is that the vision?

    If you can find me one European company that was as large and as upside down as GM that was subsequently nationalized, restructured, re-privatized and returned to it's functional glory, then I will tip my hat to you.
  • stephen987stephen987 Posts: 1,994
    If you can find me one European company that was as large and as upside down as GM that was subsequently nationalized, restructured, re-privatized and returned to it's functional glory, then I will tip my hat to you.

    Renault.
    Stronger than ever, and now (thanks to its relationship with Nissan), the number four carmaker in the world in volume, according to Wikipedia. Of course, it only took fifty years.

    But again, you're conflating C4C, a market-based demand-side stimulus program with direct corporate welfare in the form of GM and Chrysler bailouts.
  • mikemartinmikemartin Posts: 205
    A Great Depression is on its way, and fools with perfectly fine cars are going deeper into debt.

    Classic consumer mindset behavior.

    These "new" cars won't be able to be given away soon.

    http://www.nytimes.com/2009/08/11/opinion/11herbert.html?hp
  • Two very interesting points. Renault all but disappeared for a good portion of their restructure, yes? We're not talking about the preservation of a "brand" for nostalgia's sake, but the preservation of jobs. To restructure GM, a hundred thousand jobs or incomes would need be cut, easily. Yes, it's less painful than a collapse, and perhaps in the same 50 years we'd see a re-emergence of GM. I applaud your example, however, as it allows some interesting near-parallels to be drawn.

    As far as C4C *not* equating to direct corporate welfare, I fail to see how. In my understanding of the program, the government's <= $4500 per sale ends up in the hands of whom? I'm sorry, perhaps indirect corporate welfare is a better title. Is it not also true that the majority of cars sold under this have less profit in them than the value of the rebate itself? If that's true, then the program is a one-time shot in the arm to the car companies, and nothing more. They can't sell cars at this rate on their own, and certainly not right after the most-likely-to-buy chunk of the population has gone and "got theirs".

    It's a lovely, roundabout way to give money to the automakers. Here's a neat little anecdotal piece for you. At the nearby Chevrolet / Mazda dealer, the salesman said that in one weekend (8 days ago) they had sold 39 cars (a record for the last year). 28 of those cars were from C4C, and of those 28, 21 were Mazda's, and 7 were Chevy's. Ta-da! Mission accomplished.
  • fushigifushigi Chicago suburbsPosts: 1,407
    In my understanding of the program, the government's $4500 per sale ends up in the hands of whom? (had to remove the less-than/equals; it was messing up the post)

    The consumer who bought under the program. The cost of the vehicle did not go up by $3500-4500 so you cannot successfully argue that the money went to the automaker. That revenue was coming to the auto industry eventually; all C4C has done is sped up the timetable (possibly robbing the manufacturer of future revenue).

    OK, not entirely the consumer. The auto dealer has seen average transaction prices rise so there's a little profit taking there. So the consumer is getting probably 70% of the benefit and the dealer the rest. But dealers are usually local businesses so that revenue is being pumped into the local economy in the form of commissions to the salesmen, etc.

    Also, the firms who scrap and recycle the metal are seeing upticks in business. Again, the spike is temporary and may come at the price of future revenue.

    As to long-term effect, consider this. Some people are in the market for a new vehicle but don't have a qualifying clunker. My car is worth < $4500 but gets 20MPG combined, for instance. As transaction prices have crept up I've stopped looking. After C4C is over and prices go back down some I'll re-enter the fray. Other smart shoppers w/out clunkers are probably doing the same. So post-C4C there should still be decent market activity.
    2017 Infiniti QX60 (me), 2012 Hyundai Elantra (wife)
  • ingvaringvar Posts: 205
    After C4C is over and prices go back down some I'll re-enter the fray. Other smart shoppers w/out clunkers are probably doing the same.
    Yes, sir. Guilty as charged :) C4C has one huge advantage - it removes junk from the roads, roads became safer without rusted behemoths.
  • kdhspyderkdhspyder Posts: 7,160
    That's well-thought and well-stated.. kudo's.
  • kdhspyderkdhspyder Posts: 7,160
    In my understanding of the program, the government's $4500 per sale ends up in the hands of whom

    Actually the money from the Feds ends up in the hands of the buyers only. The buyers take delivery of a vehicle that has a purchase value of $20000 for the amount of $15500. All the other ancillary benefits, those to the dealers, their suppliers, the intermediaries, the vehicle makers, their suppliers and the millions of workers employed by these companies all come from the pockets of those buyers.

    Or another way of looking at this purchase would be to say that 25% of the expected improvement in the business level is government-driven and 75% is consumer-driven. If after all the consumers didn't take advantage of the incentive then there would be no improvement. They must go hand-in-hand.
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