Cash for Clunkers Falls Flat

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8/4/09 11:35 PM | 22 comments | 537 views

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Cash for Clunkers Falls Flat

By AnInconvenientPost

I can't Hear YOUUU!

Subsidizing car sales won't create new additional jobs, but if it is to be done, it ought to make some kind of sense.

Reuters

Only in Washington could a program that is spending money 13 times faster than was planned be labeled a "success." The "cash-for-clunkers" program ground to a halt last week because in less than a week, a program that was supposed to last until November 1, had spent the entire $1 billion allocated to it. Let's just hope that the government takeover of the rest of the health care industry doesn't result in similar "success."

Unfortunately, the House voted late last week by an overwhelming 316 to 109 margin to spend $2 billion more on the program. The Senate is scheduled to take up the issue this week.

The "clunkers" program is supposed to stimulate the economy as well as to reduce greenhouse gases. To encourage new car sales, owners of older cars get either $3,500 or $4,500 when buying a new car. The program has been plagued with just about every problem possible. The Department of Transportation computer system has been unable to register deals made under the program. Car dealerships find themselves saddled with expensive ad campaigns touting the government subsidies at the same time the subsidy program is in limbo.

But if you were even mildly aware of your car's gas-mileage early on, forget it, you won't get anything. The program only rewards those who bought gas-guzzlers: the EPA spent a month evaluating 30,000 vehicle models made between 1984 and 2004, and decided that only about 8,000 cars should qualify, those getting 18 miles per gallon or less. For instance, the popular mid-size Toyota Camry got too many miles per gallon. Similarly, Ford Taurus sedans, except for some equipped with V8 enginess, don't qualify, but if you happen to have a Ford Taurus wagon, there are some models, in some years, that qualify. Among cars made in 2004, there are only six models listed as eligible -- all of them trucks or SUVs.

Oddly, it does't really matter what the difference is in the gas mileage between old "clunkers" and new cars. Replacing an 18 mpg car with one that offers 22 mpg, gets you a subsidy. But you cannot get a subsidy if you replace a 19 mpg car with one getting 45 mpg.

Subsidizing car sales won't create new additional jobs, but if it is to be done, it ought to make some kind of sense. If improving miles per gallon is the goal, a sliding scale that varied the subsidy with the difference in miles per gallon between the old and new cars would seem reasonable. If emissions from older cars is important, the subsidy could also be larger when trading in older cars.

There are many other weird details of the program. One is that used cars worth more than either the $3,500 or $4,500 subsidies are not eligible. Essentially cash-for-clunkers rewards people who have held on to old, cheap gas guzzling cars for a very long time. But do we really want to reward such behavior? The thought enters your mind: if I buy a new car today with a low gas mileage, might I qualify a decade from now for a similar subsidy program?

The Obama administration also got the program's costs all wrong. The money was spent so quickly that it lasted less than a week-- just 8 percent of the time that it was supposed to last. If the government gets the health care numbers this wrong, one can only imagine the damage to the deficit.

Bizarrely, the subsidy is only given if the old car is destroyed. All the cars the government offers the subsidy for must be destroyed. Well, destroying cars at taxpayer expense might be a "stimulus" for the automobile makers and the auto unions. But what's next? How about a government program to smash windows in old houses? After all, newer windows tend to have better insulation and we could generate some new jobs in the window-making industry (and there is another new program that subsidizes the replacement of home windows). The problem is that destroying a perfectly functioning 2004 car or a window makes us poorer.

The willingness of people to take large subsidies shouldn't come as a big surprise to anyone. Yet, the money had to come from someplace else, and the government's role shouldn't be helping out car companies at the expense of other companies that people would have bought products from instead. But what should really scare people however is how poorly the Obama administration and Congress predicted the number of people who would take this subsidy. Being wrong on $1 billion is one thing, guessing wrong on a trillion dollar health care program is something quite different.

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On 8/5/09 at 05:41 AM, Yosemite_Sam wrote:

The level of fraud and the number of repossessions that comes out of this program is going to be phenomenal.

Any time you pay people to do something that they would normally not do, they will take the money and then go back to their original mode of operation.

People who could not afford a new car will take the money, buy the new car, and then will not make their payments.

Car dealers will figure out how to recover and re-sell the clunkers or parts. Some will figure the clunker is worth more than the government is giving them and will swap the vehicle with another clunker that they got outside the program.

Its going to be a huge mess...as usual for a government program.