By on June 13, 2009

Well, it looks like the American version of cash-for-clunkers is going to get past Capitol Hill, and I find myself conflicted. On the one hand, I’m getting a little sick and extra wary of more money going to prop up auto sales (I figure there is going to have to be a real reckoning before things can get better, and I’m leaning toward letting it happen). On the other hand, considering what it is (actual law-to-be and not an academic case study) this is about as good a clear-the-clunkers bill as we’re going to get. The New York Times Freakonomics blogger Steven Levitt looked at this one on Friday (I went over Germany’s version in February). Just about everything he says is true, but there is one point he missed (and was nice enough to call attention to) that throws the whole argument in opposition out of whack. We’ll get there, but first, what’s right about it?

The first thing they got right is the credit for scrapping. Back in February, I complained that the €1000 credit was too small to motivate much action. I was wrong, but only just—the hottest sales went to the cheapest car on the market. $3500 to $4500 is a good number, about a 20 to 25 percent down payment on a lot of practical vehicles (enough to keep from getting too far upside down), without completely messing up the used-car market.

Then there are the ownership and scrapping rules: simple, straight-forward and mostly enforceable (someone will run a scam, they always do, but that will be the exception). We want running vehicles taken off the road for good, so the vehicle must have been insured for a year and must be scrapped.

The mileage rules seem both too open and too restrictive. A lot of vehicles will fit the mileage rules and a lot more will qualify to be purchased. On the surface, this is greenwashing and pretty weak at that. It’s actually a good thing; the law is aimed at people buying actual practical vehicles, rather than propping up a handful of favorite models (most prospective buyers of “green-mobiles” don’t own a qualifying vehicle anyway). All of these rules are straightforward and defensible because of another effect.

For a blog about unintended consequences, Levitt really blew the most important (unwritten) part of the law. At least he was open about not knowing the true prices of used cars. Bad as the new car market has been, the used car market has been worse (though showing signs of recovery), especially older SUVs (the very target this kind of cull). A simple glance at his feedback shows him that 4000 odd dollars is a 400-500% improvement in value for a large number of formally “popular” vehicles.

It is this margin between “book” value and “bill” value that will drive most of the action on this bill (there will be exceptions, but bad cases make bad law). A better name for the bill would be the “Get the Blazers and Explorers off the Road Act.”

Once upon a time, these two vehicles ruled the car market, along with a few others (e.g., Durango) and foreign relations (e.g., Rodeos). This success came back to bite them when SUV demand dropped. Unlike their bigger cousins, they couldn’t offer much “utility” to justify their cramped size and thirst. There are plenty of alternatives, from sedans, to wagons, to CUVs that can do everything they can do and better while being roomier and more fuel-efficient. Also, they are notably thirsty (remember 18 mpg is the ceiling, not the floor). If you’re trying to push average mileage higher, the least useful gas hogs are a good place to start. Especially since oversupply and changes in demand have dropped trade-in values for these old-school SUVs down near three figures.

While most of the culled vehicles are likely to be domestic, the incentive applies to any purchase. The competition gets to sell to people who were likely out of their reach before, while the domestics get the additional bonus of getting rid of some of the most troublesome pigs in the python. Hopefully, this reduction will help push up residual values, which is the only practical way the car market will get to anywhere near the old peak. Of course, for a diet to work, you have to change your habits as well.

Again, I’m of two minds on this law. I don’t want to see an endless sea of nickel-and-dime assistance bills coming out of Washington (propping up two companies, one needing to die, and one that seems unlikely to change, is bad enough). On the other hand, once you strip away the trappings, the bill is well thought out and (comparatively) cheap. It’s no magic bullet, but at least it’s pointed at the right target.

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38 Comments on “Editorial: In Defense of . . . Cash4Clunkers...”


  • avatar
    jpcavanaugh

    The problem with the proposed approach is that the feds can’t figure out what the objective is, so the result will be a muddle.

    If they just want to stimulate the sale of new vehicles, the proper incentive should be aimed at those who would ordinarily buy a new vehicle but won’t now because of credit or being upside down on the current vehicle or because of the uncertain economy. An incentive will goose sales now at expense of later, but if the assumption is that the market will improve later anyhow, some of those sales now will help the industry.

    If it is an environmental/gas mileage thing, then the objective should be to get the oldest clunkers off the road as quickly as possible. The typical 92 Roadmaster or 97 Explorer uses way more gas than it did when new and pollutes way more through the tailpipe and through all the fluids it is leaking. Buy them and crush them. It does no good to give most of these owners a voucher for a new car because they can’t afford one, or can’t get credit. Give them money over book value. They buy a better used car, which boosts the used market and works its way up when the new car buyer’s trade becomes worth more.

    A direct approach with either objective will eventually wind through the system to indirectly impact the other one. The current proposal tries to do both objectives, and will end up not doing very much for either one.

  • avatar
    blkstne

    Me for one can’t wait to get my voucher for my 89 Jeep grand wagoneer to get 4500 dollars off a new HHR SS. The upcoming clunker bill has steer me away from some other vehicles I was considering(that got less mpg)to something that got better mpg so I will be able to get the full 4500 dollars credit.
    Clunkerbill/no clunker bill I had always intended to buy a vehicle in September but now I can free up some space in my driveway and get a lower payment on a new car. Not bad.

  • avatar
    fredcsunoedu

    Right. Nancy Pelosi will give me some of my money back if I behave as she deems fit. Perfect role for the government.

  • avatar

    Back in February, I complained that the 1000-Euro credit was too small to motivate much action.

    Germany gives EUR 2500 …. approx $3500

    For a German law, it is suprisingly simple:

    * Applicant must be a private person (no company cars)
    * Car must be at least 9 years old and must be crushed
    * Applicant must have owned the car for at least a year
    * Applicant buys a new car, or a used car not older than 14 months
    * Car must meet or exceed „Euro 4“.

  • avatar
    kovachian

    What is it with this onslaught of know-it-alls who can’t be bothered to actually read the bill, but nonetheless are absolutely convinced that they have the bill all figured out? If I had a penny for every time I’ve read THIS line of reasoning, I wouldn’t need any vouchers at all to get a free (to me) Zonda.

    I suspect it will be because enterprising people who already plan to buy new cars will go out and buy old junkers on the used-car market and then trade them in under the program.

    By the time these “entrepreneurs” have met this extremely likely mandatory requirement, the bill could expire and these vouchers might expire right along with it. Until this bill is revised for the last time and passed, then neither the author nor a single soul on the planet can know if anyone will be able to do this (and that is EXTREMELY unlikely; lawmakers may seem air-headed at times but they’re not brain-dead). There’s that pesky “must have been registered and insured for a year” part that everyone and their brother is conveniently ignoring.

  • avatar
    Andy D

    Yeah, but the only thing that could induce me to get rid of my Grand Wag is an even older 4×4.

  • avatar
    findude

    I’m betting the guy in the photo puts a set of junkyard rims and tires on that Bronco before he cashes it in. The ones in the photo will end up on craigslist or his new ride.

  • avatar
    taxman100

    No post 92 Grand Marquis will qualify, and to be honest, I want to dump our Corolla and get something bigger.

    The only people who will be using this is people who have an old SUV as a 3rd car, or their teenage or college age child drives it.

    Other than that, it just hurts the poor who drive these kind of vehicles, but reducing supply. Maybe that is the goal – to get the poor even more dependent on government, and force them into unwashed mass transit.

  • avatar
    long126mike

    Actually, what Levitt really missed was believing one could make a business out of buying clunkers and getting vouchers for them:

    “One thing will happen: entrepreneurs will play the role of the middleman, buying old beaters and then reselling them to people who are about to buy new cars, skimming off a little profit along the way.

    If I weren’t so busy, I might just start that kind of business myself.”

    He didn’t even bother to read the bill, which specifically limits the vouchers to one per person, and that person has to have had the vehicle registered, driven, and insured for a minimum of one continuous year to qualify.

    People in his comments immediately clarified this point for him, but he has yet to issue a correction.

  • avatar
    Pch101

    It might help to put some numbers to this. If this motivates 625,000 households to buy cars that they otherwise would not have purchased:

    -This will cost the Treasury as much as $2.8 billion (625,000 vouchers X $4,500/ car), plus the interest that is needed to pay for this. (The money will be borrowed by the feds, so this will also require annual interest payments of perhaps $100+ million until we’ve paid it off.)

    -For that money, you get whatever jobs are maintained or created for salespeople, loan officers, etc. from the sales. They pay taxes, and don’t collect unemployment when they get this money. Hard to quantify what that’s worth here, although somebody with more data and time on hand could guesstimate this.

    -You should also get about $15 billion in car sales (figure $25,000 per car sold.) Assuming an average sales tax of 6%, that’s $937+ million in sales tax revenues to state and local governments.

    -Assuming a 10% spread between the retail price paid by customers to dealers, and the dealer’s purchase price paid to the manufacturers, the manufacturers should get revenues of about $14.2 billion.

    -Assuming that the equity markets impute a stock market capitalization of 2x revenue, that’s $28+ billion in additional market cap. If GM gets 20% of those sales, its value should be increased by about $2.8 billion. If that creates a bit of a lift for Toyota, Ford and Honda, their stock prices should rise a bit, and lift the indices with them, which will create a tiny lift for 401k’s, IRAs, etc.

    -In addition to this, all of the parties in the chain should either pay more income taxes or get fewer tax writeoffs because of the revenue. Assuming that 5% of the revenue ends up flowing down to taxable net income, that’s another few hundred million going back to the Treasury.

    The key to this is whether most of these 625,000 voucher holders would have bought nothing had there not been a voucher. If the voucher holders would have bought a car, anyway, then it’s a big giveaway program. If buyers behave differently because of the voucher, then it could create a fair bit of value.

    With an economy this challenged, it might be helpful if it is combined with other stimulus programs. In a vacuum, it won’t do much good. But this isn’t the only effort being undertaken, so that point is moot.

  • avatar
    long126mike

    @ Pch101

    Excellent analysis.

  • avatar
    johnthacker

    While most of the culled vehicles are likely to be domestic, the incentive applies to any purchase.

    Somewhat. You’re allowed to replace a full-size truck with any other full-size truck 1 MPG higher, or with a light truck 2 MPG higher, or with a car 5 MPG higher. So it still tilts the scale for reasons of presumably just helping domestics.

    If the goal were just to improve efficiency and get the cars off the road, you could replace with anything with higher MPG, but it doesn’t work that way.

    Bad as the new car market has been, the used car market has been worse

    Contradicts several things I’ve seen. Perhaps it’s bad for certain models, like older SUVs, but for other models the used car market is better, not worse, than the new car market.

    He didn’t even bother to read the bill, which specifically limits the vouchers to one per person, and that person has to have had the vehicle registered, driven, and insured for a minimum of one continuous year to qualify.

    You don’t think it’s possible to find a loophole by changing the order of operations? Just get the person who currently owns and registers the beater to get a voucher and buy the new car (loaning them the money to do so), then sell that new one to the person who really wants a new car, with everyone splitting the value of the voucher however appropriately. If the voucher is worth several times the value of some of the old beaters, the owners of the beaters, the middleman, and the new buyer can all still make a profit.

    There are certainly worse things than this bill, though.

  • avatar

    what a fucking nightmare this is going to be. as if the incentives from GM aren’t bad enough, now try and figure this bullshit out.

    questions…

    is the voucher good for a tax credit or is it like cash?

    does the dealer have to wait for reimbursement like the factory incentives, further aggravating dealer cash flow?

    what about the trade in value? does that come in addition to the voucher or is it a substitute?

    how to verify continued insurance and ownership and who assumes liability for fraud?

    how much time will it take to decipher EPA MPG ratings and how utterly confusing will that be?

    Selling cars just isn’t the fun it used to be.

  • avatar
    taxman100

    If government spending is such a panacea for the economy, why not just give every registered automobile a voucher for $20,000? Heck, why not a million dollars to every household?

    It will stimulate the economy, won’t it? After all, who cares about next year or the next decade when there are short term political gains to be made?

    I always thought taxation was supposed to be about funding the state. The very fact it is used to try to control the people is the perfect reason why the income tax should have been ruled unconstitutional.

  • avatar
    long126mike

    If government spending is such a panacea for the economy, why not just give every registered automobile a voucher for $20,000? Heck, why not a million dollars to every household?

    It might have something to do with the fact that the former would cost $4.7 trillion, which is 21% more than all government spending (local, state, and Fed) in the US in a given year.

    In the second case, it might have to do with it costing $118 trillion, which is 8.4 times US GDP or 66% more than the entire economic output of the planet.

    By contrast, the cash-for-clunker program will cost between $1-4 billion with the bills that have passed. $4 billion is 1/30,000th of the cost of giving every American household $1 million.

    Of course, the entire point of cash-for-clunkers is to stimulate a certain amount of demand for the automobile sector at a point in which they desperately need the demand, state governments need more revenue, and it would be healthy to get more lending demand. So the $4 billion has a great multiplier effect and isn’t simply burned money. Costs… benefits.

  • avatar
    johnthacker

    It might have something to do with the fact that the former would cost $4.7 trillion, which is 21% more than all government spending (local, state, and Fed) in the US in a given year.

    In the second case, it might have to do with it costing $118 trillion, which is 8.4 times US GDP or 66% more than the entire economic output of the planet.

    Although, this just goes to show that there are diminishing returns to the multiplier effect in your opinion as well. At some point, then, the multiplier effect dips well below one; otherwise it would make sense to do these outrageous ideas. Presumably that’s the same answer to the question of why this program isn’t larger.

    In any case, this program probably does have a greater multiplier than pure government spending in the stimulus, at least according to empirical economic research, so like I said, there are worse things than this program.

    It is a bit silly to think that people can’t switch around the order of who buys the new car and gets the voucher. The middleman approach still works; just the person who currently owns the clunker technically “buys” the new car then sells it to the ultimate buyer, making part of the voucher as profit. I read the bill; it doesn’t have any restrictions on transferring the new car once it’s purchased.

    I also still somewhat disagree with your phrasing of “the entire point.” It’s not the entire point, just perhaps the largest one. If the only point were stimulating the domestic auto industry, they could do so with a variety of methods. This is just one that satisfies that point while trying to achieve a few other things too (small improvements in efficiency, implementing the bias towards domestics in a non-obvious fashion less likely to fall afoul of trade agreements, etc.)

  • avatar
    long126mike

    Although, this just goes to show that there are diminishing returns to the multiplier effect in your opinion as well. At some point, then, the multiplier effect dips well below one; otherwise it would make sense to do these outrageous ideas. Presumably that’s the same answer to the question of why this program isn’t larger.

    Right, any reasonable person knows there are reasonable boundaries to things, and thus knows the difference between the life-sustaining benefits of drinking water versus drowning.

    I also still somewhat disagree with your phrasing of “the entire point.” It’s not the entire point, just perhaps the largest one.

    You’re right. That was a thoughtless remark. In other comments on this topic, I’ve made it explicit that it’s the primary point of the bill, and that emissions, fuel consumption, social equity, and domestic preference are lesser objectives.

    It’s interesting to read Levitt’s comments and those of his commenters, and it seems almost none of them grasp that. Way too many think the point is fuel savings or emissions reduction, which would be trivial from this program. It’s particularly ironic in the case of Levitt, since he has a PhD in economics from MIT.

  • avatar
    noreserve

    Nice looking Bronco. It was always one of my favorites. Definitely no clunker in that pic.

  • avatar
    stuki

    For this bill to demonstrate the anticipated CO2 reductions (and “energy independence” improvements), miles driven in newly built, under warranty, not particularly repair prone cars, will have to be very little higher than it was in the ancient, breaking or broken clunkers they replace. The chance of that happening as about as fat as that of Al Gore’s jet saving a polar bear.

    If mileage improvement necessary to get credit was on the order of 30-50% (i.e. Bronco for Prius (or Buell, to keep it ‘Mericun) ) or so, not a few mpg (’92 Blazer for 09 similar with a twice as powerful V8), then maybe… Once the Volt is out, GM in even direr straits, and an election coming up, perhaps we will get one of those as well.

    Now, as long as the goal is suckering the usual suspects into getting even deeper in debt at the start of a long period of increased difficulty servicing that debt, then the bill certainly has some merit. I’m sure GMAC will relatively benefit, along with others of their peers in the banking and finance world.

  • avatar
    RogerB34

    Be happy that the Ford doesn’t lean back on you.

  • avatar
    Hippo

    This is nothing but a transfer of wealth from taxpayers to inner city people and welfare trash. Who drives these cars? For the most part no one that has the cash or credit to buy a new car.

    The dealers and recyclers will pull any scam to sell cars and/or make a profit.

    Nothing can stop them from transferring the credit or sell the car to someone and immediately resell it to another party with prior arrangement.
    Just like they got straw buyers for houses to obtain financing.
    The demographics targeted with this program are the most corrupt and venal people on earth, perhaps excepting Somalia and Zimbabwe.

    There already is the stock from terminated dealers that has to be sold as used despite being new. The whole thing is a cluster&u(* by design so anyone can do what they want.

  • avatar
    stuki

    Hippo,
    The “inner city people and welfare trash” who will benefit the most from this are the one’s living on Manhattan, and working in finance, receiving yet another burst of taxpayer funded welfare. And rightfully so, I guess, as they’re the ones paying for the lobbying necessary to get the bill passed.

    In the medium to long term, little benefit and lots of misery will accrue to those usually derided as “inner city people and welfare trash” from turning in their paid off, functional “clunkers” in return for another wave of debt slavery. Those guys and gals are, as usual in “progressive” politics, being used as little more that patsies in a scheme designed to benefit those with preferential access to the halls of power.

    In two to three years at most, they will see their new, green Obamamobile repoed, their credit destroyed (if it isn’t already), the “clunkers” they used to be able to afford crushed for the feel good of upper middle class high school sophomores and their moral and intellectual equivalents; and they’ll be on the bus. Still voting for change and hope, no doubt.

  • avatar
    50merc

    I’m curious about the effect on late-model used cars. Seems to me the cash-for-clunkers bill will depress the market value of used cars (except “clunkers” that suddenly become worth–to the owner–at least the applicable voucher amount).

    Let’s use CarMax for illustration, because it’s a no-haggle retailer and price data is readily available. It will sell a brand new 2010 Camry LE for $20,000. Currently it prices low-mileage 2008 Camry LE’s at right about $18,000.

    A voucher-carrying CarMax customer looks at the alternatives:
    (1) a new car for $20,000 minus $4,500 voucher, so out the door for $15,500 when the bill takes effect. (He’d be foolish to buy anything before then.)
    (2) a similar used car for $18,000.

    So–to some extent, and overall–won’t dealers have to lower used car prices to keep them competitive with new models? Won’t dealers have to cut trade-in allowances because the vehicles can’t be resold for as much money as before?

    OK, PCH101 and others who like to analyze these things, is my logic sound? Would the bill make certified pre-owned cars a stupid choice for voucher-eligible customers?

  • avatar
    DrBeets

    More government interference…great. Quick! Now someone please bring up FDR, Rand, Keynes or Austrian economics.

    BTW That Bronco is cool. You would be foolish to trade that beast in. You will need it when the government, having blown all our money on free healthcare, TARP, bailouts and earmarks, can no longer pave roads.

  • avatar
    Hippo

    Stuki

    In the medium to long term I actually agree with you.
    I would be most happy if no one gets anything.

    They can not be helped, they are what they are, their intent is to drag everyone down to their level.

  • avatar
    Hippo

    50 merc

    I would wager that the cars sold against vouchers would be sold at list.

    The demographic targeted is the one that mostly drives Detroit cars.

    In the case of Detroit cars the 4500 voucher would likely go mostly to the bailed manufacturers in form of saving them the cash on the hood.

  • avatar
    "scarey"

    @Buickman- +1
    @Hippo- watch who you are calling “welfare trash”.
    They and the “inner city people” are going to eat you when the recessiondepression comes, Hipposteak.
    And THEY couldn’t get a new car loan anyway, so you needn’t worry about it.
    @Taxman- I wrote to my congressman and senators, suggesting that they send $1 Billion to each taxpayer. I told them that they would STILL get the hyperinflation they want, but every taxpayer would feel RICH to boot.

  • avatar
    Dave M.

    But is ditching my 16 mpg paid-for Trooper worth going back into car payments for? No.

  • avatar
    agenthex

    Now, as long as the goal is suckering the usual suspects into getting even deeper in debt at the start of a long period of increased difficulty servicing that debt, then the bill certainly has some merit. I’m sure GMAC will relatively benefit, along with others of their peers in the banking and finance world.

    If the banks are really that evil, we should’ve had no problem in getting public support for regulating them. I hope we can all these votes for politician who support such actions in the future.

    BTW, great plan to stick to the economy. It had it coming, screwing us up like that.

    -

    Nothing can stop them from transferring the credit or sell the car to someone and immediately resell it to another party with prior arrangement.
    Just like they got straw buyers for houses to obtain financing.

    This would probably be illegal, and should be prosecuted. I hope this means everyone would support holding white collar criminals accountable in the future instead of the usual tough on [non-white] crime deal. Speaking of which:

    -

    The demographics targeted with this program are the most corrupt and venal people on earth, perhaps excepting Somalia and Zimbabwe.

    They can not be helped, they are what they are, their intent is to drag everyone down to their level.

    Ah, yes, people who own crappy cars, the bane of our society. We’re much too generous in even allowing them to vote, go to school, or even breathe our air.

    I guess we could force them to wear some kind of label so we know whom to spit on in the street, but we really is some kind of camp for their ilk, where they could be separated from normal folk.

    -
    OK, PCH101 and others who like to analyze these things, is my logic sound?

    No, because you forgot the trade in value.

  • avatar
    capdeblu

    I really wish the US version of the Cash for Clunkers bill would look like the Europeon version. The US bill (as it stands now) looks to exclude 99% of cars and favor SUVs.

    This would be a great incentive for me get out of 2 cars and go to one. One commuter car and one weekend car.

  • avatar
    Pch101

    Would the bill make certified pre-owned cars a stupid choice for voucher-eligible customers?

    It would for certain individuals, but there won’t be enough of them to substantially impact market prices of used cars. The number of sales impacted by this program would be a drop in the bucket compared to total car sales.

  • avatar
    Steven Lang

    If this program stretches through 2011, then it definitely will be a mini-boon for ‘middlemen’ selling gas guzzlers.

    I don’t think it should be structured as it is. In fact, I’ve argued long and hard a few ‘Hammer Times’ back that offering free replacement cats, making trip computers and tire monitoring systems standard on all models, and rewarding ‘keepers’ of fuel efficient cars would be a far more intelligent way to go with our resources.

    We no longer live in a world where cars need to be replaced every five to seven years. It’s time we simply cut the excess capacity in the domestic industry and dedicate our resources to more profitable pursuits.

    One other aside, this program will obviously make economical cars more expensive for those who already chose to drive that type of car in the first place. Why should they (or their children) subsidize someone else’s decision?

  • avatar
    JohnHowardOxley

    @ Steven Lang:

    I’m all for “free replacement cats”! I am a big fan of the furry purries.

  • avatar
    wsn

    While most of the culled vehicles are likely to be domestic, the incentive applies to any purchase.

    ———————————————

    That’s a fact, but far away from the truth.

    My family and friend are the typical Japanese brand buyers. Even the odd one that buy a D3 product, it would be something like a Malibu. Essentially, I cannot think of a single person that I know has an old car that qualifies.

    Who is this policy target at? Previous D3 pickup buyers, because Chairman Obama knows something called “demography”. These people are the most likely to buy another D3 product again.

    If you believe their logic (I don’t), at least shouldn’t it be like the new car must have a 10mpg advantage and there is no limit on the old car?

    Why is 18mpg so special? Why doesn’t 19mpg count? EPA are very rough estimates to begin with, we know.

    Why is replacing an old F150 with a new F150 any better than replacing an old Camry with a new Prius?

  • avatar
    50merc

    Cash For Clunkers looks like a boondoggle to me. It’s flawed as economic stimulus, flawed as a measure to weed out thirsty, smoky vehicles, and flawed in terms of who it helps or hurts. One is reminded of the adage that a camel is a horse designed by a committee.

    I wonder if charities will squawk about the bill. Many get a lot of tired cars donated to them. Under the bill there’d be no point in donating a $500 to $1,500 car to charity when it’s worth $3,500 or more at a dealer that will crush it. PCH101 dismissed my question with a curt reply, but I think the bill’s consequences won’t be trivial for the individuals who are adversely affected.

  • avatar
    Pch101

    PCH101 dismissed my question with a curt reply, but I think the bill’s consequences won’t be trivial for the individuals who are adversely affected.

    My last reply was factual and on point. You want curt, you’re about to get it.

    Instead of just assuming, do a bit of research before formulating a judgment. The US used car market is substantially larger than the new car market, as noted here: http://www.bts.gov/publications/national_transportation_statistics/html/table_01_17.html

    Now, time for an exercise in long division: divide the number of vehicles in the clunkers program by the total number of used car sales in a given year. If you wish to be conservative (as in cautious, not politically so), trim the used car sales number by some factor, to account for a smaller overall car sales number that we probably have today.

    Now, notice that this percentage that you’ve just calculated is not large. That’s why I made the accurate point about it being a drop in the bucket, because that’s what it is.

    It’s a math issue. If the clunkers program included 20 million cars, it would be a lot different than what is being offered here. This program is meant to churn some revenue into the car makers, not to motivate very many car sales. It just isn’t big enough to impact the overall supply of vehicles.

  • avatar
    50merc

    PCH101, may I offer my apology for confusing you with another commentator. It was agenthex who said simply “No, because you forgot the trade in value.” I sincerely regret my error. (BTW, I did not mention trade-in value for the clunker because it would be nominal–dealers won’t give more than a few hundred for a true clunker–and it’d be the same for either purchase.) I was pointing out the vast difference between a clunker’s market value and a voucher value.

    I should also say that you are correct that in a country with forty-odd million used vehicle sales annually, the million or so vouchers will not significantly distort the market overall. But there seems reason to think there could be a detectable hit on near-new vehicle values, and the number of cheap cars available to buy.

    Steven Lang put it well: “this program will obviously make economical cars more expensive for those who already chose to drive that type of car in the first place. Why should they (or their children) subsidize someone else’s decision?”

  • avatar
    agenthex

    You asked whether there was anything wrong with your assumptions. I pointed to a clear error which shows it wasn’t thought through well.

    I would think most cars being actively insured are worth something.

    In any case, it’s something to push people who may be tentative with a big ticket purchase now over the top.


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  • Authors

  • Brendan McAleer, Canada
  • Marcelo De Vasconcellos, Brazil
  • Matthias Gasnier, Australia
  • J & J Sutherland, Canada
  • Tycho de Feyter, China
  • W. Christian 'Mental' Ward, Abu Dhabi
  • Mark Stevenson, Canada
  • Faisal Ali Khan, India