Cash for Clunkers - Good or Bad Idea?

erniesdad

>>
All right then, picture Microsoft, Boeing and Intel all collapsing and declaring bankruptcy on next Monday morning? Scared yet?

If one giant can go, why not others? And if others can go, what does that say about consumer confidence, the stock market, faith in government, etc.
>>
Why do you keep up the strawman argument that bankruptcy equals liquidation? It doesn't, and never did. Airlines have slipped into and out of bankruptcy for decades. Dozens of companies, small and large, have entered bankruptcy proceedings leaner and more competive as a result. Bankruptcy gives a company that can produce products at a profit but has financial/structural issues a chance to restructure their obligations and keep going as a viable enterprise.

What's happened instead is that GM and Chrysler have taken some $60B of our money, gave that money to the UAW, and declared bankruptcy anyway, the terms of which are to keep the Wagoner act work rules and compensation that have destroyed the "American" car companies.

british_rover

Dude just stop you are making too much sense. No one is ever going to believe you if you make sense like that. Just make up hysterical lies, half truths and miss statements and then you will be all good.

Mr_Shiftright

I met Ms. Fields---very attractive and a nice person. But that's the way the cookie crumbles. I guess all our cookies will now come from China.

erniesdad -- I wasn't making the argument that Ch. 11 equals liquidation at all -- I was addressing those in the topic who were suggesting that GM should have gone into immediate liquidation, which as we all know is Ch. 7.

Having one of America's literally *mythological* companies suddenly disappear in a smoking heap of debris, while under one's stewardship as President or as a Congress, is a political legacy no sane person wants to inherit. Nor did Bush and nor does Obama. Politics is in-your-face hardball and economics is not far behind. The old cliche we kept hearing "it's the economy stupid" is as true today as it was 10 or 20 years ago. All other issues pale in comparison and in immediacy IMO.

kdhspyder

I'm not sure I buy into that. The country survived layoffs and the loss of hundreds of thousands of jobs in the aerospace industry back in the early 90s because of mergers and defense cutbacks. Hard to see how the demise of GM would have been worse, even with the more optimistic (higher) estimates of jobs that are directly or indirectly tied to Detroit.

The best of GM would have survived in some form even if it had undergone a more radical form of bankruptcy. The best plants would have been bought by someone. All the workers would have been let go, the existing contracts voided, and workers could then have applied for their old jobs under a lower cost wage structure. Sort of like what happens when a public school gets reconstituted for poor performance.

The first paragraph is arguable but yes it may be that the B2 could have gone belly up and it would have just killed Detroit and Michigan for 10-20 yrs or so. Not much effect on the rest of the country. Neither the past President nor the current one and their advisors wanted to risk killing an entire city or state. Bush didn't want a reenactment of Katrina in NOLA.

Your 2nd paragraph is simply wrong. If GM had not been saved by Bush then it would have been forced into liquidation. The bondholders would have sold off the parts piecemeal. That's what they were fighting about these last 6 months. They didn't want GM to continue, they wanted it closed and sold off for scrap parts. There would have been NO new jobs for these workers to go to. Remember this was Dec/Jan 08/09 when we were in the depths of our darkest despair. No money was available for anyone from any source. The banks themselves weren't sure that they'd make it through.

kdhspyder

I was in the steel business for the latter quarter of last century. I saw the decline of Bethlehem and in fact our company considered buying parts of it. The decline was very similar to the auto industry decline but the decline was gradual as Beth moved from long products in Eastern PA to flat products in Balt and Burns Harbor. In Bethlehem the demise of the plants there was a foregone conclusion from the early 80s onward.

GM does have $60 Billion of our money at the moment but it's net worth is between $15-$25 Billion as of today. If it begins to make money and increases its prospects for an IPO next year that $60 Billion may be recoverable in full....IF...time will tell.

kdhspyder

Why do you keep up the strawman argument that bankruptcy equals liquidation? It doesn't, and never did. Airlines have slipped into and out of bankruptcy for decades. Dozens of companies, small and large, have entered bankruptcy proceedings leaner and more competive as a result. Bankruptcy gives a company that can produce products at a profit but has financial/structural issues a chance to restructure their obligations and keep going as a viable enterprise.

Again, see post just above. You don't understand bankruptcy in any way shape or form. Without DIP financing Ch 11 was impossible. Only Ch 7 liquidation was possible. You need to be more current on current affairs. This has been discussed all over the blogsphere for months. Stay current, at the end of 2008 and Jan 2009 there was no DIP financing available. This is not a sudden revelation.

What's happened instead is that GM and Chrysler have taken some $60B of our money, gave that money to the UAW, and declared bankruptcy anyway, the terms of which are to keep the Wagoner act work rules and compensation that have destroyed the "American" car companies.

This is also wrong. Your timing of events is incorrect as is your understanding about what has transpired over the last 4 months. If this is the level of understanding of the American public it's no wonder that so much anxiety is being expressed herein. Please stay up-to-date.

GM and Chrysler did not take $60 Billion of our money and then declare bankruptcy...and they never gave it to the UAW ( frankly that's just stupid or an outright lie on your part ). The fact that anyone actually believes such rubbish is amazing.

"...the terms of which are to keep the Wagoner act work rules and compensation that have destroyed the "American" car companies." First, EFL classes would help. Second, nothing in that quote is accurate or true.

srs_49

I agree about the bondholders. I thought they were favoring C7 because they had a better chance of getting back more of their investment than they have received under the current C11 arrangement. That's perfectly understandable.

If the bondholders sold off the parts piecemeal, might some of those parts have been whole factories that some entrepreneur or other company might have wanted at a fire sale price???

srs_49

Scared yet?

Nope. If they go, there'd be more business for my company :shades: .

In all seriousness, none of those companies, that I know of, have had the long run of unprofitable years that GM had, and have nowhere near the debt that GM had a month ago. Microsoft could have bought the D3 a couple of months ago with cash and still had a couple of billion in spare change left over. Last October Intel had cash reserves in excess of $12 billion. Wasn't than more than GM was worth?

Mr_Shiftright

Yeah but if you had stood up just a year ago and announced to a large gathering of car people, or for that matter Mr. Bush's economic advisor, that General Motors would be in bankruptcy in 12 months, they would have probably politely snickered, or called you a cynic.

Or for that matter, that the United States or for that matter that California would be broke.

My feeling is that when things "this big" happen "this fast", you have to "act fast".

(see, "Titanic, The")

andres3

The way it's working out is actually a brilliant and effective solution given the short timeframe. Both may survive and actually be stronger with a minimal loss in jobs in the country.

They should fail because they did FAIL! they will fail again because they have failed over and over again year after year decade after decade!

What if they don't survive? What if they collapse in a few more years again in need of another $50 billion + in aid? Will it still be brilliant?

kdhspyder

You have so much anger bubbling under the surface toward GM and Chrysler.

What is brilliant and effective is the way these two corpses were brought back to life and given a second chance to succeed with minimal cost in comparison to the alternatives. Soon the plan is to spin off both of them and collect our investments thus minimizing our potential costs even more.

Now if they fail a second time because they suck and they can't produce vehicles that the market wants that won't last as long as the competition then I'd certainly have to consider letting them go at that time. But each would be smaller entities and not so deeply intertwined into the national wellbeing. Presumably both wouldn't fail in the same month and presumably our economy will be stronger so that one such failure wouldn't cripple all of us.

But only time will tell on that. In the mean time I wish them well, godspeed, make huge profits, get sold and give us our money back. After that they're on their own. If one or the other can make a vehicle better than the Prius then I'll consider it myself.

british_rover

Yeah but the D3 didn't always fail. Sure they had cars in the 70s that were very bad and struggled to get themselves right in the 80s but by the 90s they were making money.

Sure all of the D3 relied on truck sales too much and neglected their cars but Toyota did the same thing to a lesser extent. Chrysler was the most profitable automaker period in the 1990s that is why Mercedes wanted to buy them. Chrysler didn't even rely on big SUVs and trucks as much as Ford or GM did and they still made the most money. Sure Chrysler had Jeep then but none of the Jeeps were huge and they did ok for mileage and they were reliable. Pretty much any jeep with the 4.0 engine was indestructible as long as you did your basic maintenance.

Think back to the 1990s what SUVs did Chrysler have? All the Jeeps of course but they were smaller vehicles. Chrysler itself had no SUVs at all just the Minivans and they were good vans just cheap on the inside. Then you had dodge with their trucks of course but again they were pretty good trucks. The only Large size SUV was the Durango and it didn't come out till the late 90s.

Chrysler never had any truly huge behemoths like GM and Ford did. They made their profits on their regular trucks, Jeeps, Minivans and the LH cars that were also pretty good. I am sure they made a little bit of money on the Neon too but not a ton.

I think you just had such a bad experience with your neon that you can't see things clearly.

andres3

I think everyone underestimates the power of goodwill.

I think a lot of you are underestimating the power of ILLwill.

GM & Chrysler have a lot of illwill due to poor customer service, poor lemon-like products, and poor performance. Let's not forget that a lot of Americans are boycotting these 2 companies for life now that they decided to STEAL taxpayer money in the form of bailouts. All of this has generated OODLES of illwill!

Now take Honda... they extended transmission warranties to 100K miles on 36K mile warranties. They didn't charge me a dime when my tranny failed at 42K. They even gave me a loaner for the 3 days it took to get a new tranny in. They told me the replacement was warranted from the date and mileage at the time of the installation/replacement. they have generated mountains of GOODwill.
Audi just did a similar thing in covering my AC compressor in an A3 at 53,000 miles. Goodwill is grown.

WHERE the hell was Chrysler when my AC compressor blew up at a tremendously more egregious 36,250 miles????? I had to pay every dime of that repair. No goodwill was generated. In fact, the ILLWILL was EARNED by Chrysler. I hope every Chrysler employee rots in hell, they deserve it.

andres3

I am sure they made a little bit of money on the Neon too but not a ton.

I'm sure they did, it was a vehicle that should of cost no more than a Tata Motor vehicle, and of course all owners usually had to purchase about $5,000 in replacement MOPAR parts just from mile 36,001 to mile 65,000. And I was lucky, I never had to purchase a 3rd replacement part for anything, it was always something else, something different.

andres3

Yeah but the D3 didn't always fail. Sure they had cars in the 70s that were very bad and struggled to get themselves right in the 80s but by the 90s they were making money.

Yes, they made some money in the 90's, but ONLY at the expense of their own loyal customers, by implementing planned obsolecense. The engineering of purposely making a product have a short life span so that you have to buy it again in a short time frame. That PLANNED Obsolecense backfired, and they actually only planned their own destruction and bankruptcy instead. Good riddens.

hpmctorque

What year and model is your clunker?

srs_49

Yeah but if you had stood up just a year ago and announced to a large gathering of car people, or for that matter Mr. Bush's economic advisor, that General Motors would be in bankruptcy in 12 months, they would have probably politely snickered, or called you a cynic

But technically, wasn't GM bankrupt far longer than 12 months ago? Maybe I don't have the right terminology, but GM's liabilities have been greater than it's assets for a lot longer than 12 months.

maryh3

I'll argue politics later but what would you get? With all rebates and C4C money. 09 model of course.

Mazda Tribute manual transmission 2.5 FWD base model $12,500

Mazda Tribute automatic 2.5 FWD base model $ 14,400

Toyota Rav4 automatic 2.5 FWD base model $17,400

Car will mostly be driven by teenaged boys. Advise welcome. HP and mileage comparable

gagrice

Yeah but the D3 didn't always fail. Sure they had cars in the 70s that were very bad and struggled to get themselves right in the 80s but by the 90s they were making money.

Actually over the last 20 years GM has never shown a profit of 5% or greater. And of course losing $80 billion over the last 4 years is why we are discussing them. I bought 5 new GM trucks during that period. Which only the 2005 gave me some bad taste. I am in the group that feels they should have taken the hit and made it on their own or died. I cannot believe more than the NA GM would have failed. They make money in most of the World outside the USA. As was pointed out their legacy costs and of course piss poor management drove them to the brink.

I'm taking a wait and see attitude. I would not take a chance buying a GM or C now. I don't believe Obama has the skill level to repair them if they break. :shades:

stever

You may want to try a discussion like Crossover SUV Comparison over in SUVs or Best Car for a new teenage driver.

You may get nothing in here but "buy American." :shades:

maryh3

And when they actually had a profit back in the 90's all GM and Ford did was go on a shopping spree and buy Saab, Volvo, Land Rover, Jaguar and so on. Could have developed better cars instead. Companies can get too big and flop under their own weight. Now we are all supposed to get excited because they blew their profits, got too big, failed, used our tax money to get small again (a leaner meaner GM). Piss poor management indeed.

hpmctorque

I was with a group of about 30 people recently, and the topic turned to the government bailout of the auto industry. I asked for a show of hands regarding how many favored it, and 26 hands went up. Then I asked this same group how many currently own one of the Detroit 3 vehicles, and only 3 went up. When I asked those who didn't own domestic brand cars why they didn't, even though the majority favored the bailout, the general response was that the last one, two or three they owned weren't good, or worse. Now that our government's money is on the line, would these people buy a domestic brand car. Virtually everyone said "no."
Would they even cross shop one? Most said no, adding words to the effect, "well, maybe in 10 years after they've demonstrated that they're as good as my Toyota, Honda or whatever they happened to be driving.

Is it just me, or is it hypocritical to favor the billions in bailouts to save the D3, yet refuse to consider, much less buy one of their vehicles? Okay, I know this group may not have been representative of all car buyers, if for no other reason than the D3 sell ~40% of the new vehicles in the U.S. today. To me, it's still hypocritical.

I look for President Obama to plug D3 vehicles in a speech soon. He'll may do it only once, but at a minimum he'll suggest that new car shoppers at least consider an American car. I'd be okay with that, as long as it was a one time appeal.

Mr_Shiftright

GM can succeed if they have the will and the talent.

IBM came back from the dead. So did Denny's. So did Peugeot, so did Ferrari.

and now....Woolworths!!!

gagrice

This C4C will be the first real test. I don't think they have a made in USA car that will qualify for an 18 MPG clunker trade-in at $4500. Unless the Cobalt XFE is made here. That is a very limited appeal vehicle.

stephen987

Honda Civic, Toyota Corolla, Toyota Matrix, Pontiac Vibe, Chevy Cobalt. Made in USA, combined mpg greater than or equal to 28. Not sure, but I think some versions of the Focus and Sentra are also US made.

But your 18 mpg V6 Ranger isn't nearly as perfect a target for this plan as my 13 mpg Ram 1500. With it, almost any small car with four cylinders will qualify, as will many midsize sedans.

isellhondas

Ah...Microsoft....Boeing?

Don't say that!

gagrice

I was mainly referring to GM and their chances of surviving and taking advantage of this plan. I am not sure bur think you may only be allowed to trade your Ram in on another truck in the same category. The rules are rather vague at this time. You could always go give it a whirl and see if you get any dealers to take the bait. They are hungry and want a piece of the action.

british_rover

seven percent bump in sales already for the month so far.

autoblog link

Now some of those sales would probably happened without C4C but I am sure plenty went through solely because of the clunker money.

Hyundai thinks they might get 10 percent bump in sales before the month is over.

kdhspyder

It was written by the auto industry. The D3 obviously weighed in on the truck issue so that more of their customers, i.e. truck owners, could take advantage of the program. That's why only a 2 mpg improvement is needed to get a $3500 voucher and only a 5 mpg improvement is needed to get a $4500 voucher for 'trucks'.

Basically any V8 truck or SUV from the 90s and earlier qualifies ( all D3 vehicles ) and to get a $3500 voucher the improvement only needs to be 2 mpg.

1995 F150 Ext Cab 5.0L 4AT is 14 mpg Comb
2009 Edge AWD ................. is 18 mpg Comb = $3500 voucher
2009 Edge FWD ................. is 19 mpg Comb = $4500 voucher

Again I reiterate, a lot of thought has gone into this program by a lot of people throughout the industry. It was basically handed to Congress...'Here do this.'

dave8697

what a crock from beginning to end.

Honda got caught and admitted to having their odometers run too fast. No wonder they would honor the warranty a thousand miles after expiration. The car was still actually under warranty.

Dealerships have nothing to do with the quality of the vehicle FROM the factory.

sf2

I must have come to the wrong conversation, i thought this was Cash for Clunkers

mickeyrom

That bad,huh?

mickeyrom

I have a 97 Town & Country that I am considering "entering" into this program.Does this car deserve to be squashed and replaced with a Fit or a Hyundai wagon,I forget it's name.Or should just keep this old Mopar with 155,000 miles on it? I just recently replaced a compressor and a rear wheel bearing.Is that a bad sign?

british_rover

We have been over this before. You had a very bad Neon I am sorry. I know plenty of people who had good Neons. I worked on plenty of good Neons. Get the DOHC motor not the SOHC and watch out for oil seepage at the back of the head gasket. Oh and always get a manual trans that three speed auto was junk. The Neon is an infinitely better car then the Caliber that replaced it that's for sure.

Mr_Shiftright

As it should be. A good leader in a democracy sets a goal, gathers his/her allies, and has Congress and private industry figure out how to do it, or modify it if it won't fly. Dictating from the top, whether it be GM or the White House, is a bad idea. The isolated CEO, or Board of Directors, is headed for a trainwreck IMO.

GM has long been guilty of an "ivory tower" mentality, up there on the 14th floor. Couldn't tell 'em nothin', they knew all the answers before the game was even played out.

stever

I have a '99 minivan that I want to trade. My '97 wagon doesn't qualify, but it only has half the miles of your van so it's a keeper for a while longer anyway.

The Fit is a lot like a shrunken minivan and you may like it. I haven't checked out the Hyundai wagons. But either rig is likely to keep you out of the shop for years longer than your high mileage T&C. And either could save you, oh, maybe $6,000 over 100,000 miles in gas expenses (depending on how much mpg you gain, assuming $3 a gallon gas, and assuming my wife's estimates are right, etc. - she went through that exercise a week ago).

While saving $4,500 is nice, the flip side is that you'll still spend at least ten or twelve thousand getting into the new ride. That buys a new crate engine or transmission rebuild, neither of which you may ever need.

srs_49

IBM came back from the dead. So did Denny's. So did Peugeot, so did Ferrari.
and now....Woolworths

Sure, it can happen,given the proper mix of talent, will and, to a large extent luck (as in picking the right product mix).

And now for examples of those that did not come back from the dead:
Montgomery Wards
AT&T (bought by SBC communications
EJ Korvettes
Two Guys
Digital Equipment Corp (bought by Compaq, I believe)
Compaq Computers (merged with HP)

british_rover

I would also take a look at the Mazda5 if you wanted to retain more of the Minivan feel in a small package. You can get a Mazda5 in a manual and it qualifies for the rebate in either automatic or manual. The mileage won't be as good as the Fit or Elantra wagon but more cargo capacity and seats six I think.

Mr_Shiftright

Actually the failure of AT&T was a benefit to mankind, so don't include that one.

tucsondon

I'd be curious to see the NUMBER of C4C sales that Hyundai has made during the first week, rather than the percentage. That will be a pretty good indicator of how quickly the first $1B in C4C funding will be used up. Anybody have that info?

I've seen both arguments: That the $1B in funding will go quickly, or that there aren't enough qualifying vehicles (or people with good enough credit) to use the full allotment. Since I'm planning to take advantage of the program (will be trading in my '94 Mazda B4000 and getting a Ford Escape), I'm wondering if I should be ready to run with it right on July 24th.

kdhspyder

I don't think that you have to be there in line at 8AM on the 24th like you would for Springsteen tickets but I wouldn't be surprised if the $1 Billion is used up before the 10-31 deadline.

If the program is a big success I firmly believe that it will be extended quarter by quarter at least through 6-30-10. Originally the program was foreseen to be 12 months and $4 Billion. I think that this will be the scope of the program.

stephen987

For what it's worth, I'm planning to aim for the end of July. Give the dealers a few days to master the procedures, and also take advantage of the end-of-the-month urge to move one more unit.

emmettdog

Just bought a Santa Fe last night and O'Brien Hyundai in Ft. Myers Fl had 15 clunkers really to be smashed and mine makes 16. We almost bought a RAV4 but had to wait till the 23rd and I needed a car now. O should have made you buy Amercian only on this program but my gain because F and GM were way more expensive compared to the Santa Fe

Mr_Shiftright

So what did these clunkers look like overall? Did they appear to be obvious junkers, very tired cars, etc. or better looking than you would have expected?

emmettdog

I thought I was on the used car lot except one pretty beat up pickup. I had a 97 chevy with 93k in good condition. In my mind I wonder if they will really trash this or ship it south of the border. Another interesting thing all the dealers asked "if the check engine light is on". In my research it never mentions anything about a check engine light, just it has been insured and you owned it for a year. They asked for a insurance card.

Mr_Shiftright

I doubt if most car dealers would risk violations of federal law. These are not mickey mouse curbstoners, these are franchised dealers with multi-million dollar investments. The risk is far too great for the profits IMO, and the more sleazy middlemen they use the riskier it gets. Besides, there's profit enough in recycling right here at home.

One question---who gets the $$ for the scrapped car?

kdhspyder

That's a good question. It could be in any of 3 places
1...the current owner strips as much of the vehicle that he can, keeping it legal, and then turns it over to the dealer
2...the dealer could strip down the clunker for parts and ship the frame and engine to the scrap yard
3...the scrap yard strips off everything and destroys the engine.

Any or all of these could get part of the $$$ from the scrapped parts, but...
1...most traders are not car-savvy enough to salvage much from their clunker
2...most dealers are not scrap yards and don't want that junk hanging around messing up the premises. We for example are not at all interested in any amount of scrap and junk around our site. Everything we take in will go immediately to the scrapper. He can have all the proceeds of scrapping it. It doesn't matter to us one way or another.
3...my guess is that the scrappers will get all the revenue

Frankly I don't think that the legislation cares who gets what as long as the engine is destroyed.

british_rover

I don't think we will know that till the end of the month but I can try to estimate it.

Just have to make a couple of assumptions and use Hyundai's last three months of sales.

June 37,943
May 36,937
April 33,952

OK so the past Hyundai has been picking up steam going into the summer for the past three months so I wouldn't use just the average of the past three months which is 36,277 sales. Lets say they do better then June like the have been doing and they do 38,943 sales for July. That is about 9,700 sales a week and seven percent of that is 681 cars.

Granted that is a lot assumptions but without more info there is no other way to do it.

emmettdog

The law states you get the 4500 or 3500 plus the scrap valve of the car. Bet most people didn't ask for that. Found it on www.car.gov .

kdhspyder

Sorry that's NOT true...but neither is it clear. Here is what the cars.gov site says

[quote]
In addition to the credit, will I get the full value of my trade-in vehicle?

No. The law requires your trade-in vehicle to be destroyed. Therefore, the value you negotiate with the dealer for your trade-in vehicle is not likely to exceed its scrap value. The law requires the dealer to disclose to you an estimate of the scrap value of your trade-in vehicle.
[unquote]

The dealer only has to tell you what the estimate of the scrap value is. It doesn't say that you have any right to get any of that value. It says nothing about it. That's an individual discussion between each trader and each dealer. If one dealer is willing to give you all or part of that value then that sounds like a good deal for you, but it's not required.