Cash for Clunkers - Good or Bad Idea?

stephen987 · July 2009

If it were that easy then Malcolm Bricklin, John Z. DeLorean, and Preston Tucker would've made huge fortunes off their innovative approaches to the automobile. Instead they went massively, spectacularly broke--in Bricklin's case, four or five times.

And Elizabeth Carmichael (a/k/a Jerry Dean Michael) and her Twentieth Century Motor car Corporation would've sold half a million copies of the Dale.

british_rover · July 2009

No you couldn't.

You wouldn't even get a single product off the ground with one billion dollars.

Remember my story on Rover's T5 platform? 1.4-1.6 billion USD just to develop that one platform and refit an old factory to use in two vehicles to sell 100,000 cars world wide. That was with a company that already had an established distribution network and marketing network. Rover's network is truly worldwide they sell cars in more countries then any other brand on Earth AFIK. 190 countries last time I looked at the list.

A billion dollars wouldn't even come close. You are very naive.

kdhspyder · July 2009

And then on top of that the buying public has to be willing to step up and plunk down $20000 or so for MR ANDRES' super-duper Naivete' Special midsized 4 banger that's never been driven on the roads, never been tested by any agency and has no history of reliability.

And then MR ANDRES' company is expecting to sell a minimum of 100,000 of these every year just to recoup his $2 - $3 Billion investment....and begin to make a good profit after 5 years??? Rots of Ruck.

Mr_Shiftright · July 2009

Looks like it's true. The Clunkers program might go CLUNK! (suspended, or amended, or re-funded?).

In any event, this program was, to say the least, quite the smash hit with the buying public. 96,000 transactions already submitted to NHTSA and about 200,000 predicted.

Not a bad week's work.

CHIMES AT MIDNIGHT?

gagrice · July 2009

A friend brought his new Escape by from the C4C program. Traded his old 4Runner last Saturday. They had to get the Escape from a dealer in Orange county to get the color and options he wanted. He picked it up this morning. The Ford dealer may have to eat the $4500 if your link is correct.

But dealers think the CARS.gov gauge is actually on empty. Dealers and dealer organizations are concerned they have far more transactions in the works for consumers to trade their clunkers for more fuel-efficient vehicles than the program has in funds, and dealers will be left holding the bag for the vouchers of up to $4,500 if the government funds run out.

Of particular concern to dealers is fact that they must destroy the clunker and provide proof it has been destroyed before they can even apply for the government voucher. If the money runs out, the dealers must honor the deal and be out the reimbursement.

So the dealer takes your clunker trashes the engine and finds out that Uncle Sam is out a cash for clunkers. I see the dealer eating the $4500 loss. Or putting a rebuilt engine into the customers clunker and taking back a slightly used new car. If those are the rules why would any dealer want in on the program?

mushi0 · July 2009

I want to know your estimate on when this program would run out of money and public support?

plekto · July 2009

The dealers won't suffer a loss. What will happen is that the program will close in a few days and any pending transactions will be funded in excess of the amount so as to not cause a tsunami of bad press.

So 1 billion turns into 1.something billion. And tens of thousands of mostly poor people go into debt. This is a bad, bad thing, as you might imagine. But after the prime and derivatives markets fall flat on their face this next winter, nobody will care about a few people with car loans they can't afford.

PF_Flyer · July 2009

Pleading Poverty?

maryh3 · July 2009

Now if this occured then absolutely there would be a shortage of vehicles. A huge shortage. But it didn't.

The bailouts have occurred less than a year ago well within the time frame of poor car sales. People are not buying GM's cars. There is no shortage of GM cars for the consumer. Even with CARS, there is no shortage of supply - there is a shortage of consumers of GM products.

You're also naive to think that if the former plants of the B2 went on the auction block that suddenly out of nowhere some upstart would spring up, buy all the equipment and begin to make Silverado's, Corvettes, Rams, Cobalts, etc. Just who do you have in mind that has the expertise, organization and to build a 3 or 4 million unit auto producer out of thin air in less than 5 years? There is no one. You're just making stuff up here just to continue the argument.

Why would a new company make those vehicles? GM failed with those vehicles. They would make their own vehicles - having some overlap with GM but differing too. I'm not sure who has the expertise to produce out of thin air, but the alleged shortage of vehicles already has been filled by Hyundai, Honda and Toyota who are increasing market share while GM declined over the last decades. Any new company bids on GM assets they deem valuable and passes on others. The new company has to offer vehicles that consumers want - not GM products. This does not mean the former GM factories and technology are all totally worthless. Adapting already standing assets is often cheaper than building from the ground up, same with technology. Who has the money - that is the entire basis for corporations and the selling of stock to generate capital. New companies form everyday funded through private investors, venture capitalists, bank loans, IPO's, other corporations - I'd buy some stock in a new US auto company that I think has potential - but I wouldn't buy GM's LOL. As for the expertise needed to build a new company -- Obama seems to think the US government has this expertise. The old company failed remember? The government now owns GM. Private investors were denied that chance and the very existence of should-be bankrupt GM is a barrier in itself to any new upstart company.

And why would any company want to buy the old broken down plants of GM or Chrysler in Michigan, Indiana and Ohio? All the new plants are going up in the mid-South and South. Sure a few GM plants are very capable like Oshawa and Fairfax and Spring Hill so GM kept these in the 363 sale and left the garbage to be auctioned off and shutdown.

In bankruptcy ALL assets are auctioned off. They just fetch differing amounts of money. Upstart companies bid high for the assets they believe they can profit from the most. IYO those are southern plants. The upstart company could buy those and skip those in Ohio. Why should the government get to do this but not the private sector?

You also have to disabuse yourself about the concept of 'government intervention in the public sector'. This never happened. It's the creation of Faux News and the Party of Negativity.

Just to remind you of the facts the two private companies threw themselves on the administration of GW Bush and said "We give up, we can't make it on our own." There was no intervention in the affairs of a private company. The two private companies asked to be taken over. Those are the real facts.

The facts don't negate the wrongness and overall detrimental effects this will have upon the rest of us. The national debt went up, we continue to drain the Treasury to support entities like the UAW that caused the inability to compete effectively in the first place, we negated fair trade and equal competiton that are healthy to the economy, we created a barrier to innovation and technology. You are correct though in saying this ghastly move was bipartisan. A company throwing itself at the government for help gets bankruptcy -- time to start over.

You keep coming up with some miracle producing upstart with clever management, skilled laborers and good technicians? Name this miracle company.

In the last two decades I'd call WalMart, Microsoft, Apple, Hyundai, AirBus, Honda quite successsful. Some entered into mature fields too. Where are giants IBM, Unisys, McDonnel Douglas and K-Mart? With unemployment high I see no lack of workers, there is still plenty of money in the hands of private potential investors, and lots of clever managers are out there who would not touch GM but might manage a private, newly founded automobile company. I wouldn't mind that chance myself.

This is time for new ideas, new technology, new companies - going forward not clinging to the past stagnating and draining the treasury. Bankruptcy serves a very necessary purpose. Evolution goes forward, trying to prevent it is foolish. Throwing your hands up in the air and saying "it can't be done" - THAT is negativity. I consider myself as the postive thinker - and so do all successful people.

jipster · July 2009

I think the C4C program could have had twice the effect, more clunkers off the road, if they would have scaled back on the money given out per clunker. That they are almost out of money after only a week, shows this wasn't very well thought out.

I think starting out at $2,000-$3,000 (tops) per clunker would have been more than enough to have the desired effect of people trading in their clunkers. Paying $3,500 and $4,500 per vehicle is waaaaay to much... throwing good taxpayer money down the drain. C4C....baaaaad idea. :sick:

gagrice · July 2009

That was well stated in just a few words. I like it.

ingvar · July 2009

And tens of thousands of mostly poor people go into debt. This is a bad, bad thing, as you might imagine.
I do agree. Lot's of people who can't afford a new car, new insurance payments are buying new cars because of 4.5K "discount". But it is free country, so people free to make choices.

Karen_S · July 2009

http://www.cnbc.com/id/32235069

isellhondas · July 2009

As I head to work I can only imagine the phone calls that await me.

It's off! It's on!

?????????

Karen_S · July 2009

Cash for Clunker Limbo: What Next?

White House Says Cash for Clunkers Is Up and Running

nippononly · July 2009

Guzzler program still operating; White House searches for funds

UPDATED: 7/31/2009 9:27 a.m. ET

WASHINGTON -- The federal cash-for-guzzlers program continues to operate this morning despite dealer reports that it was to be suspended at midnight last night because it was approaching its $1 billion limit.

"It is not suspended," a White House spokeswoman, who asked not to be named, said in an interview today. "We continue to assess the program and its budget."

They announced this morning that they will honor all deals completed today. After that, I guess they want to see some results that assess how successful the program was (why? They had 250,000 sales in six days, I would say that is success with a capital 'S'!!) and thy want to try to get additional Congressional funding before the congressional break.

But some keys folks in congress want different conditions on C4C II:

U.S. Sens. Dianne Feinstein of California and Susan Collins of Maine said any extension of the incentive must require greater fuel efficiency and higher reductions of auto emissions.

That makes me think they won't approve an extension of funding until after they return from their break. I am prepared to be proven wrong though.

I agree with their assertion that the next piece of the C4C should insist on higher fuel economy improvements than the current one, particularly with respect to trading a truck/SUV for another truck.

http://www.autonews.com/article/20090731/ANA08/907309966/1197
(registration link)

gagrice · July 2009

So do dealers keep on selling under the C4C program, hoping that Congress kicks in more money. It is a gamble unless they hold the new car until they have the cash in hand.

My guess would be when Congress gets done with the extension, only a hybrid or VW TDI will qualify for purchase. The cut from $4 billion to $1 billion was a big compromise by the greenies. Now they have the floor.

Mr_Shiftright · July 2009

I'd like to see C4C actually turn "green" than just "pretend green", so I agree with you---give the juiciest vouchers to the extremely high MPG cars.

RE: "going into debt". Well, now, at least you know how the "miracle of capitalism" has been running since the mid 1970s. Work more hours for the same hourly wage, borrow off home equity, borrow off new car collateral, borrow with no collateral (credit cards).

If everyone in America stopped borrowing money, we'd be in enormous difficulties.

At least if a family traded in a vehicle getting 15 mpg @ 15,000 miles a year for one getting 45 mpg @15,000 miles a year, one might justify debt in the sense of "saving" $2000 a year in gas. If you put a healthy down payment on a new Prius, you might even pay for your annual car payments by the gas savings. (more or less).

maryh3 · July 2009

But aren't they already punished or rewarded at the gas pump? If gas prices go high enough, it will be more effective than any C4C program.

Being they forced us to bail out GM, they should have waited for the Chevy Volt to be read before starting this program.

stephen987 · July 2009

they should have waited for the Chevy Volt to be read before starting this program.

They should've called that one the Chevy Godot.

But I would've liked to see the Ford Fiesta available in time for C4C.

mickeyrom · July 2009

I have similar,yet not identical thoughts about this program.In my view,those who can actually afford the payments on a new car do not have a clunker,unless it is a second car.If that is the case,why pay thousands of dollars for something you really don't need.

Mr_Shiftright · July 2009

Sometimes I wonder if there really IS a Chevy Volt. This could be the Tucker of 2012.

maryh3 · July 2009

The usual government and GM efficiency :P .

KCRam · July 2009

CNNMoney.com has a breaking news alert right now - the House has voted to approve an additional $2 billion for CARS. The Senate will vote Monday.

kcram - Pickups/Wagons Host

Karen_S · July 2009

http://www.autoobserver.com/2009/07/us-house-votes-to-fund-cash-for-clunker-exte- nsion.html

Mr_Shiftright · July 2009

No, there won't ever be any "new American car companies" of any significance IMO. That entire era is long gone.

lemko · July 2009

This is the awful procedure step-by-step of disabling an engine with sodium silicate solution

Perform the following procedure to disable the vehicle engine.

1. Obtain solution of 40% sodium silicate/60% water. (The Sodium Silicate
(SiO2/Na2O) must have a weight ratio of 3.0 or greater.)

2. Drain engine oil for environmentally appropriate disposal.

3. Install the oil drain plug.

4. Since the procedure is intended to render the engine inoperative, drive or move the vehicle to the desired area for disablement.

5. Pour enough solution in the engine through the oil fill for the oil pump to circulate the solution throughout the engine. Start by adding 2 quarts of the solution, which should be sufficient in most cases.

CAUTION: Wear goggles and gloves. Appropriate protective clothing should be worn to prevent silicate solution from coming into contact with the skin.

6. Replace the oil fill cap.

7. Start the engine.

8. Run engine at approximately 2000 rpm (for safety reasons do not operate at high rpm) until the engine stops. (Typically the engine will operate for 3 to 7 minutes. As the solution starts to affect engine operation, the operator will have to apply more throttle to keep the engine at 2000 rpm.)

9. Allow the engine to cool for at least 1 hour.

10. With the battery at full charge or with auxiliary power to provide the power of a fully charged battery, attempt to start the engine.

11. If the engine will not operate at idle, the procedure is complete.

12. If the engine will operate at idle, repeat steps 7 through 11 until the engine will no longer idle.

13. Attach a label to the engine that legibly states the following:
This engine is from a vehicle that is part of the Car Allowance Rebate System (CARS). It has significant internal damage caused by operating the engine with a sodium silicate solution (liquid glass) instead of oil.

14. File this document in the file for the new vehicle purchase.

Mr_Shiftright · July 2009

Sounds like fun actually. Perhaps this will put to sleep the age-old wives tale of "use borax to hone your cylinders".

philliplc · July 2009

probably easier to do step 4 before step 2 lol

kdhspyder · July 2009

So 1 billion turns into 1.something billion. And tens of thousands of mostly poor people go into debt. This is a bad, bad thing, as you might imagine. But after the prime and derivatives markets fall flat on their face this next winter, nobody will care about a few people with car loans they can't afford.

If you've read the posts on this subject then you're way off base on your prediction. The poor are not participating at all. The traders are nearly all well-off and solid financially. In this initial rush it's almost all cash buyers or buyers with no debt and 750+ FICO scores.

Good swing, but Steeerike One!

jipster · July 2009

yeah... might be a good opportunity to do some scientific experimentation. Which makes and models will run the longest without oil.

british_rover · July 2009

I have had one person with poor credit, poor as in under 550 credit score, come in so far and he is putting down so much money in addition to his clunker money that I think we can get him done. He is financing less then half the MSRP of the car even including taxes. He is actually down near the minimum of what the bank will loan.

kdhspyder · July 2009

Now this is getting truly ridiculous and naive.

OK let's say that some new upstart ( there is no such company so you're just dreaming ) decides to build here in America using some of GM's plants. But they also don't want to build any of GM's old nameplates as you stipulate.

Therefore what you're saying is that this new rookie startup company is going to have to develop entirely new vehicles from scratch, all new platforms, new engines, new drivetrains, new safety features, new accessories, new styling, new everything. This is getting goofier and goofier. All this development has to take place before the first vehicle is sold..

Then the US buying public has to trust this new rookie upstart on reliability, safety and financial soundness.....and then for the enterprise to be successful immediately the US buying public has to buy these unproven vehicles in numbers greater than GM could sell them. That's more than naive, that's simply dumb.

Again your last paragraph is fallacious because your original statement was that GM and Chrysler should go out of business and immediately a new innovative upstart could step in and fill the void left by those two. There is no such innovative upstart. Even if there was one such as Penske/Saturn it will take years and years and years for that company to prove itself and then to grow to any size.

Your original hypothesis is false. A new innovative upstart that takes years and years to be proven cannot fill the void immediately....it's called barriers to entry.

Your positive thinking is dreaming.

Now if you want to rephrase your argument that over the next 20-30 years there might be a new innovative upstart that comes here and slowly builds its reputation and gains the trust of the US buying public such that it takes over the positions of GM or Chrysler. Then sure why not. This is the way it should be.

Be logical and be focused.

kdhspyder · July 2009

Lot's of people who can't afford a new car, new insurance payments are buying new cars because of 4.5K "discount".

This is false but don't let a good misconception ruin a faulty belief. You're way off base, in fact just the opposite is true.

Next misconception to be stomped and squashed???

melissae · July 2009

Hope you have better luck than I did. I traded my jeep (that has my maiden name on the title) in for a jetta. Four days later got a call from the dealership...bring the jetta back...gov't won't accept the title with a different name on it. Called the CARS people and was told the name has to be the same. Funny thing is, if you read some of the legal mumbo jumbo on the CARS website, it says it's ok if you've gotten a divorce or had a spouse die and your title is different. Guess they support divorce and death, but not marriage!

Mr_Shiftright · July 2009

GM has shut down 22 plants since 2004 and Chrysler plans to shut down 16 more. Not exactly high demand real estate property at the moment. Old Ford T-Bird plant at Wixom is a deserted hulk.

explorerx4 · July 2009

people being what they are, i wonder if another effect is the one of someone seeing their neighbor having swapped out their clunker for something new and shiny, and start to feel the pressure to up their car game a little? :P

gagrice · July 2009

Again your last paragraph is fallacious because your original statement was that GM and Chrysler should go out of business and immediately a new innovative upstart could step in and fill the void left by those two.

What you seem to leave out is the fact that GM and C did not sell 7 million vehicles in 2007. We are under 10 million for this year. So if NO company comes in the others could carry the demand. Toyota would not be selling 38% below last year. Same for Ford and the other survivors. So when and if the US auto market ever gets back to 17 million which is doubtful, there is plenty of time for the survivors to add production. Whether they ever use the old GM/C plants is not likely in my way of thinking. We really do not need any more players in the market. So if Mahindra or Chery come in it will be just a bit more competitive. I doubt they would build factories here. That is not the direction our Global economy is headed.

isellhondas · July 2009

Yes, she is dreaming.

Look what happened a few years ago when Daewoo tried to elbow themselves into an already overcrowded market.

Mr_Shiftright · July 2009

Mahindra was planning to introduce a single mid-size diesel truck to the USA if/when it can pass US certification. The certification process alone will cost $80 million dollars, for one truck model, already designed and built and ready to sell. That should give us a small idea of what it takes to put one small toe into the US market. The intro was planned for 2009 but no sign of it yet. Also it was planned to do final assembly in Ohio but that was cancelled. Also these trucks will therefore be subject to a 25% Federal tax, which was not planned.

Chery cars were supposed to come into the US in 2007. Never happened.

Interesting wrinkles.

melissae · July 2009

Just got off the phone with CARS (for the 2nd time) and they said just have the dealer get a copy of the marriage license and everything should be fine.

kernick · July 2009

I agree. There is no need to keep excess production. If GM and Chrysler went out of business the other manufacturers would not have seen their sales fall as they did, and those companies would be healthier. We'd still be selling the same number of cars, just with a few less makes. There would still be plenty of competition with all the European, Japanese, and Korean companies, and Ford. And maybe some of GM and Chrysler (Jeep, Cadillac and Corvette) could have been salvaged and kept running independently by entrepreneurs.

C$C is a global stimulus plan and I really hate to see U.S. tax $'s go to stimulate the global economy, to keep the excessive global auto manufacturing capacity busy.

gagrice · July 2009

I am sure what you are saying is correct. My point is with the current market for vehicles, if GM and C went away, they would not be missed by the consumers. Only Lemko. Those that survive can more than carry the current demand. Ford, Toyota, Nissan, Hyundai, VW etc can easily carry the load. If new companies emerge they will need to have a product that people want or they will go the same route as GM, down the toilet. Right now we are just wasting tax dollars keeping them on life support. Pull the plug and give the others a chance to get back to making money. The way it is now all the auto makers are losing money. That means none of them are paying corporate taxes. Three companies making a profit are better than five all losing money.

beam19 · July 2009

From everything I am gathering a marriage license is ok....

fezo · July 2009

Yeah, it sounds like the folks at the VW dealership just don't have their facts straight. You should be fine.

gagrice · July 2009

She sees the opportunity to push her plan through now. Here is a snippet of what she wants. It will make the current plan seem simple and straight forward.

Eligible drivers would receive a reimbursement voucher for the purchase of a new or used vehicle with a fuel economy rating that exceeds the CAFE target for that class of vehicle by at least 25 percent. The bill also requires that the voucher be used towards the purchase of a vehicle that has an MSRP of less than $45,000, is model year 2004 or later, and meets or exceeds federal emissions standards. Vouchers could also be redeemed for transit fares for participating local public transportation agencies.

Drivers who apply for the program must ensure that their vehicles turned in for scrapping match the following criteria:

* Vehicles must be in drivable condition;
* Be currently registered in the U.S.; and
* Have a when-new fuel economy rating of less than 18 miles per gallon (as reported by the original manufacturer for purposes of CAFE compliance).

The bill specifies that during the first year of the program, vouchers will be issued for the following amounts:

* For traded-in vehicles that are model year 2002 and later, drivers would receive a voucher for:
o The purchase of a new vehicle: $4,500
o The purchase of a used vehicle: $3,000
o Transit fare credit: $3,000
* For traded-in vehicles that are model year 1999  2001, drivers would receive a voucher for:
o The purchase of a new vehicle: $3,000
o The purchase of a used vehicle: $2,000
o Transit fare credit: $2,000
* For traded-in vehicles that are model year 1998 and earlier, drivers would receive a voucher for:
o The purchase of a new vehicle: $2,000
o The purchase of a used vehicle: $1,500
o Transit fare credit: $1,500

In each subsequent year (2010, 2011, and 2012), the model years would be advanced by one year. Vouchers would be eligible for redemption for up to two years after the date of issuance, and no individual would be eligible to obtain more than one voucher in any three-year period. Dealers, dismantlers and scrap recycling facilities would also be eligible for a payment of $50 per vehicle, or an alternative amount to be specified by the Department of Energy.

http://feinstein.senate.gov/public/index.cfm?FuseAction=NewsRoom.PressReleases&C- ontentRecord_id=d6137935-0a4f-1ab7-ddb4-8a1760ea170c

kdhspyder · July 2009

Interesting and not too bad actually but I'd reverse the order...
..more incentives to get older less efficient vehicles off the road
..less incentives to get modern more efficient vehicles off the road

She is trying to make this 'greener' than it was intended to be. It was not about enviromental issues originally except tangentially. It was about stimulating the entire auto industry and using less fuel ( national security ).

Mr_Shiftright · July 2009

I agree...she has it bass ackwards.

gagrice · July 2009

I think she made it way more complex than needed. I am trying to imagine what kind of 2002 vehicle that gets 18 MPG or less would not be worth more than $4500. I agree with both the last week has proven that to get people to trade in the old jalopy will take a decent amount of persuasion. $4500 seems to get them moving. As you have posted most of the deals are people that could afford to buy without the plan. Their conservative nature won out with a $4500 incentive on vehicles they knew were not worth much at all.

My question. Will the ultra Liberal Democrats just go ahead and extend the program as is? Or will they kill the momentum that it has established in the auto industry. Most people I am around are not car people. They are all talking about this "Cash for Clunkers". That makes it a success in my opinion. I am a firm believer in not messing with things that are working. Will this lame brain Congress just keep it rolling or kill the momentum?

philliplc · July 2009

"I am trying to imagine what kind of 2002 vehicle that gets 18 MPG or less would not be worth more than $4500."

Kia Sedona : )

Cash for Clunkers - Good or Bad Idea?

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