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There's little debate that the program would create a surge in car sales, but since our economy has a very large service component, it's highly doubtful that the incremental auto sales by themselves would end the recession. The program would "help" end the recession, since it would be stimulative, but one has to ask at what cost. One cost might be that, to the extent that auto sales contribute to booms and busts, this plan will help hasten the onset of the next recession. Why? Most people who buy '09 and '10 cars to take advantage of the rebate won't be in the market in '11,'12 and '13. Some of these people would trade their vehicles in '09 and '10 even without the federal rebate program, and may be holding off now to be sure of being included. This may be depressing current sales. Others would trade their vehicles after '10. Meanwhile, every year many clunkers are scrapped, so the average fleet mileage would increase naturally, albeit at a slower rate. The upshot, however, is that the stimulus program will aid the economy now, but, in the absence of a subsequent clunker program, the increased supply of '09 and '10 cars will cause sales to suffer in later years. Also, if we assume that cars will tend to become increasingly economical as new technologies are introduced in '11 and beyond, a plan for '09 and '10 will reduce sales of those more economical cars. The upshot, in my opinion, is that the program will result in minimal long term bang for the buck. Further, the benefits to the relatively few beneficiaries (auto industry workers and rebate recipients) will be paid for by many current and future taxpayers.
Circling back to our economy's large service component, to the exptent that older cars are scrapped, they will no longer need to be repaired and maintained. This loss, mainly to small businesses and their employees would, then, reduce the net benefits of the program.
To put this issue in perspective, the clash-for-clunkers program is but a small component of President Obama's economic plan. Since this is an auto site, my comments are narrowly focused on this particular program.
Every state will benefit each according to its population. That's one of the reasons why this is much better than a direct handout to the D3. Michigan and Ohio will benefit because the workers there will continue to be employed and there may actually be a 'bump' in employment if demand is great enough. But so will CA ( Corolla ) and KY ( Camry ) and AL ( Sonata ).
Every state will benefit each according to its population because sales tax revenues will jump, not all the way back but they will jump, as people actually go into into the dealerships and actually buy stuff.
It depends entirely on how you define benefit. If you mean that every state would have some beneficiaries, in that even in states where there's virtually no manufacturing of cars or components some people would get additional work and some would get rebates, you're correct, because a clunker program would stimulate car sales. However, that doesn't take into consideration the costs associated with clunker program, which would yield the net benefit.
Politicians and advocates of clunker pork programs conveniently omit the costs of programs. If you consider the net benefit, including the cost to current and future taxpayers, I think the number of states and individuals that would benefit would be significantly reduced. In fact, I would bet that there would be more losers than winners.
Long-term, the government needs to reduce size, cut spending and control the deficit. None of the current debates will matter if the government continues its path to financial ruin with deficits that are approximately 10% of GDP. Americans need to accept a lower standard of living, spend within their means, and expect the government to provide less nonessential services.
One could argue against any stimulus money being directed toward the auto industry but I don't think that position is politcally or economically tenable. The decision has been taken already to stimulate the economy. So, what is the best way to do it? The money is all borrowed one way or another so there are no direct losers we all with share the interest costs.
Europe has many planned economies and they are hardly "failed". Democratic Socialism is merely capitalism with a leash on it. Unbridled capitalism is pathological by definition, as is now plainly apparent.
Excluding political terror and social experiments, both of which are outside the legitimate bounds of theories of planned economy, economic planning makes a great deal of sense in a world that is limited in resources and linked so firmly in global dependencies.
True it's a tricky balancing act, but it seems better for 2010 than a runaway freight train.
Capitalism's pathology is both its strength and its weakness. Capitalism follows Darwin's theory of the strong destroying the weak ( both theories were developed contemporaneously ) thus ensuring the survival of the fittest. I do feel that it is the most efficient system but it is nowhere near the fairest system
Unforfunately oft-times the weak are we the consumers. We the retail consumers in NA unfortunately are not very good Capitalists. We don't protect ourselves as much as we should from the marauding packs of well-trained capitalistic wolves. I've seen this throughout my sales career in both steel and auto's. Most NA retail consumers are sheep fattened by wealth and comfort to the point that we despise fighting for our own economic survival. Most NA consumers feel that its beneath them to negotiate face-to-face, it's an insult to have to haggle. Businesses rarely have such hesitancies. Other cultures consider it insulting not to negotiate at the retail level. Negotiation is part of the necessary interchange as it is in business.
With our ingrained antithesis toward standing up and negotiating for ourselves we've become fattened sheep for the wolves. When the wolves wear suits, hide in 50th story corner offices and wield far too much political influence then we end up sheared or even cut up into lambchops. But that's our national philosphy.
Thus we need strong shepherds with viscious dogs to protect the flock.
Naturally if I started you up, my favorite nephew, in a business whereby I'd provide all raw materials free for plundering,(cut all you want, it's in the back yard) and you just manufactured wooden widgets and sold them, you'd do very well. But as the material became inaccessible for whatever reason, you would falter. Can you say that despite your vast past successes, you had a good business model?
The auto industry has been working in a very mature market since the 1960s, and dependent on cheap oil, cheap (or at least affordable) labor and easy credit.
All gone now except the saturated market. That's still here.
Or worse, the minimum price for any car in running shape will jump up to the minimum payout. So much for getting that parts truck for cheap to get an engine out of... Oh, and too bad if you are poor and need a cheap car to get around in...
I initially was for this but this point was brought up to me by a friend, and I see no way to keep this from happening. Because people will trade in anything that they can get their hands on.
Fannie Mae was created by government and has become a welfare agency for people that have not demonstrated the emotional or financial maturity to purchase a home.
Fannie Mae allowed for the securitization of loans which has played a major role in our banking collapse.
So how has Fannie Mae worked out for us????
Now some want to socialize clunkers and car companies.
In simple economic terms assests must continually be reallocated to their most efficient use.
Capitalism is creative destruction. Prosperity is unlimited and is created by the human mind which must be free.
We have very little capitalism in the US but an exception is technology where everything gets better, faster and cheaper every month.
Of course we need to socialize that industry too.
Did anyone miss the collectivist experiements in the 20th century???
One hundred million plus murdered by their own governments to implement socialism, just wonderful.
So to all the world improvers out there please stop helping us.
I think it is also specious to blame the current problems solely on capitalism. The government needs to be an effective regulator in some industries; for example, the government failed spectacularly in its oversight duties of the mortgage industry. The government also contributed to the problem through its involvement with Fannie Mae and Freddie Mac, allowing the two to take on excessive risk, and the Fed's reckless manipulation of interest rates during the 2002-2004 period.
I still would like to know whom you trust to create the utopian planned economy. The track record of the current large government programs (social security, medicare, medicaid) suggests that the government is ill-equipped to manage an economy.
Besides, socialism and capitalism were never intended to be a form of government. They are economic systems.
Believe me, we do not live in a socialist society any more than we live on Neptune.
It's like One Big Car Commercial!
The consideration by Governments world wide to "stimulate" Motor Manufacturers New Vehicle Sales by giving away taxpayers money as a "Scrapage Bonus" is in my humble opinion possibly the most ill considered proposal, I have ever heard of.
No I have not been to Harvard, Yale, Oxford or even Cambridge; my observations are from the University of “Working in the Motor Industry” all my life.
So OK I remember cars where you did not need a degree technology to dare open the hood (Bonnet) of your car but I also keep bang up to date with technology and have used computers for nearly 35 years to source, locate and provide “Recycled Auto Parts”
Maybe you may have worked out by now that I am an Englishman and asked yourself “What can he know about the situation in the USA”. That is actually a simple one to answer especially in relation to “Clunker Payments” – The seeds of Clunker Destruction origin can be traced back to Europe under the guise of the “End of Life Vehicle Directive”.
Legislators are Legislators and Vehicles are Vehicles whichever side of the “Pond” you sit on and the series of questions below are for those who will be “Voting for or against Clunker / Scrapage Fee Payments”
Question A - Have Legislators forgotten that these are the same manufacturers who all agreed to produce more recyclable vehicles over a decade ago?
Question B - Have those same officials missed the fact that most manufacturers still produce vehicles in which about 80% of the valuable components or packed in the front of the vehicle and the driver?
Question C - Have those same officials ignored the reality that for over 99.9% (Maybe) of the time people “do not drive in reverse gear” so this results in the 80% of components in the vehicle being most vulnerable to accident damage?
Question D - Do those government officials consider that if we can send men to the moon and unmanned spacecraft to various areas of the solar system it is beyond the capabilities of Most Vehicle Manufacturers to build vehicles where the 80% is pushing the driver and vehicle?
Question E - Has any European Government official ever considered that it may have been a bit unwise to have gifted Motor Manufacturers, who are by default the biggest sellers of New OEM parts, total control over the destiny and processing of vehicles that can be Recycled to produce "Lower Priced Competitive Recycled OEM Parts"?
Question F - Can any Government official explain what they believe may be the economic and Environmental consequences if all these “Clunkers” and all the Reusable Parts they contain end up as scrap which then causes a shortage of “Professionally Recycled Parts” to be available.
I could get right up to Question Z but end with this one.
Can any Government Official in any country explain why when "Recycle, Reuse and Responsibility" are the buzzwords of the world the Buzzwords Used when categorizing Billions of products that could be recycled to save the C02 Emissions required in producing New Products are Scrap and Waste?
Yet the damage that can be done in even a year or two is immense. If you effectively raise the value of a running vehicle to several thousand dollars, the poor will find themselves either with no affordable options in a time when we precisely don't want millions of unemployed people unable to get to or look for work., or worse, they will all get into loans which they can't afford.
We had a similar program in California years ago, and still do, actually. It raises the value of any running vehicle to the minimum payout to crush it - about $600-$800. This might not seem like much, but it creates a great amount of angst for high school and college students.
Upping this to $3-5K? That's more than some students looking for their first cheap car. That's an entire section of the population that would be priced out of a replacement vehicle. (Just look to Japan for an example - few can afford a car)
Too bad there's no way to get around most of the U.S. other than with a car. This smells like a back-door method to force everyone to buy new cars, much like how they force us to buy auto insurance.
Last paragraph should read as
I could get right up to Question Z but end with this one but I will finish with this one.
Can any Government Official in any country explain why when "Recycle, Reuse and Responsibility" are the buzzwords of the world the Buzzwords Used when categorizing Billions of products that could be recycled to save the C02 Emissions required in producing New Products as Scrap and Waste?
"The Guardian reports that the $868 million program would award $2,896 (half of which would be paid for by the automobile industry) to vehicle owners who trade old vehicles for new ones. The newspaper adds that the program will be "markedly smaller" than the $2-billion German program that awards about $3,300 to consumers who trade in old vehicles."
You could say similar things about Japan. Its economy has essentially alternated between recession and stagnant growth since 1990. Do you think our stock market has behaved poorly? Well, it has in the past 16 months, of course, but the Nikkei reached 39000 in late '89 or early '90, and it now stands at ~8700. Despite the wonderful Toyotas and Hondas, and great electronics, the secular trend (very long term, encompassing several cycles) for the Japanese stock market has been down, down, down.
As for future U.S. scrappage plans, you'll be able to count on more programs after the first one, because the surge in sales that this one will produce will permit its advocates to point to its great success. Never mind that some sales have been and are being deferred because people want to make sure they'll receive the rebates, and that, since some of the sales will be borrowed from the future, this plan will hasten the onset of the next slump. It's flawed economics.
Examples:
Two Navy officers each making in excess of $100K want to buy a used Corolla for their daughter. Each has over 700 Beacon... declined.
Then a lady with a 780 Beacon wants to trade her vehicle early meaning that she has significant negative equity. She has never missed a payment anywhere on the record. Declined. HUH? Well it turns out that she had income of about $3500 monthly and bills totalling $4500!!
In the past both would have been approved automatically by the lenders' computer simply on the basis of FICO scores.
For the poor folk that you worry will bring our economy down by trying to upgrade their clunkers....they will or will not get a loan if their debt to income ratios are in line. It's all in the hands of the banks and the banks are running scared now.
That is encouraging news. Though a little late shutting the barn door after the horses all got out. I think CA laws are weak on lending. We have a lot of used car dealers that carry their own paper. Most times the interest is 15% and up. We loaned money to my wife's brother and a nephew to avoid the high interest. I think they are giving her about 5%. Better than keeping it in the bank at under a percent.
The G8 also has some appealing attributes, but these are offset by the fact that large, powerful sport sedans may soon be dinosaurs.
I wonder whether Chevy will get a version of either the Solstice or the G8. It's been suggested that the G8 would make a good replacement for the Impala.
Once all the dead weight has been sloughed off, Chevy will need to be VOLUME for GM, and replacing Impala with a limited availability sedan imported from Australia is not the way to accomplish that objective.
What they should do post-haste is figure out how to engineer an Impala with the G8's specs that can be built right here (using an existing RWD platform) for a lower price point, and replace Impala with THAT in two years' time.
2014 Mini Cooper (stick shift of course), 2016 Camry hybrid, 2009 Outback Sport 5-spd (keeping the stick alive)
Even the cheapo Porsche 914 figured out how to do that.
Edmunds Sees US Auto-Sales Downturn Easing In April (CNN)
The Solstice coupe has slightly more storage space than the Solstice and Sky roadsters, which have virtually none, but if two people were to go away overnight, say, they'd have to pack very lightly, and use soft luggage, such as a small duffel bag. Packing for a weekend would be a challenge. The roadster has even less room. The passenger would probably have to put the bag on the floor, in front of the seat cushion.
This deficiency would be a deal breaker for me. It might be more understandable if an existing very small, Sprite-like platform had been used, but, again, the Solstice was designed with a new platform. Not too much has been said about this, but I think it's another example of why Pontiac, in particular, and GM have failed.
I'm not sure financial incentives will be enough to overcome the public perception that they cars they are buying are "not quite right yet". You remember the "don't buy a first year model" advice? This seems stronger than ever for domestic products right now---not sure why that buzz is so strong at the moment.
If you think about it, businesses like Wal-Mart can convince people to buy less than wonderful product, but they have to lower the price pretty drastically. I just don't see $3000 bucks tipping any scales.
I wish it could, I really do.
We went through all sorts of things - my brother had the classic Vega head gasket.
It's that sort of thing that sends one off to the land of "well, let me try something else" and a load of folks never go back.
As for the baggage space limitations of the Solstice and Sky (and, I imagine, the Opel version that GM is building here and exporting), it's hard to imagine how they could remedy this without radical changes. I think that flaw is baked in.
Incidentally, I test drove a Sky turbo automatic. The power was impressive, and it handled very well.
For many cars today that is only a 10% discount. I get 10% or more discount almost everywhere as a Senior Citizen. I would not have considered my Sequoia at near MSRP. If it was not end of the series for $10,000 below MSRP and more than $5,000 under Invoice the dealer would have found another buyer. That was a 20% discount.
So this pittance clunker plan to me is a joke. It will end up in the dealers pocket as most people are clueless on getting a good deal on a car.
2014 Mini Cooper (stick shift of course), 2016 Camry hybrid, 2009 Outback Sport 5-spd (keeping the stick alive)
But I think there are a fair number of people who are just "sitting on their money", whether to wait for a better deal, or to see if they'll have a job next week.
These people might have been planning to replace a troublesome car in 2009, or perhaps to accomodate a growing family, etc.
I don't think the incentives are going to compel either poor people or high-rollers or dreamers to do anything more or less than what they are doing now.
Soooooooo, this deal is not likely to keep Chrysler out of Ch 11, should it in fact be headed that way as we speak.
.....but did you mean to post that thought here?
Even if one or more of the domestics fail, I am assuming that as long as there is at least ONE left, there would still be a basis for going forward with a clunker plan.
2014 Mini Cooper (stick shift of course), 2016 Camry hybrid, 2009 Outback Sport 5-spd (keeping the stick alive)
No I mentioned the Chrysler / Fiat deal because I had previously posted it was off, and someone said "well maybe not" and they were right. I would have liked to have seen some cash in the deal though. Fat chance.
I think if Chrysler went kaput, most of its former customers would migrate to a different American brand rather than go foreign. So bring on the clunker plan! :-P
2014 Mini Cooper (stick shift of course), 2016 Camry hybrid, 2009 Outback Sport 5-spd (keeping the stick alive)
In that case, some clunker plan might keep them on their feet. If these economic props at our expense would create a leaner meaner and healthier Chrysler, I might buy into that.
for me, a clucker plan might not work this year, but maybe next year.
my budget changes can be a ponderous as asomes changes for large corporations.