'Cash for clunkers' final tally: 700,000 cars sold

[steven johnson]

The long term goals of 'cash for clunkers' remains dubious. A lot of the cars weren't clunkers -- just low MPG vehicles. The majority of the cars sold were from foreign manufacturers. The top ten vehicles turned in were all American manufactured vehicles -- gas hogs. Why we are subsidizing SUV and truck owners with buyers remorse is a bit vague to me. And then subsidizing the purchase of vehicles manufactured abroad.

It looks like middle class welfare and foreign automobile manufacture welfare. Not exactly the groups who were hurting the most.

The "cash for clunkers" program sparked the sale of nearly 700,000 new vehicles while coming in just below its $3-billion budget, the Department of Transportation said today.

Dealers submitted 690,114 applications for rebates totaling nearly $2.9 billion through Tuesday's deadline, the department said. The program, which offered rebates of $3,500 and $4,500 to motorists trading in a gas guzzler for a more fuel-efficient new car, proved wildly popular. It burned through its initial $1-billion allotment in about a week when it began late last month, causing Congress to quickly authorize an additional $2 billion.

The top three new vehicles purchased through the program, and eight of the top 10, were from foreign-headquartered manufacturers, led by the Toyota Corolla. The best-selling U.S.-branded car, the Ford Focus, came in fourth, and the Ford Escape was 10th. Toyota vehicles accounted for 19.4% of the new vehicle sales, followed by General Motors with 17.6%, Ford with 14.4% and Honda with 13%.

All 10 of the top vehicles traded-in under the program were from American manufacturers, with the Ford Explorer at the top of the list. All were sport-utility vehicles, trucks or vans. Only 109,380 of the trade-ins were passenger cars, but those vehicles made up the majority of new car purchases through the program, with 404,046.


'Cash for clunkers' final tally: 700,000 cars sold

[JonQ]

1. And I'm curious how many actually bought a new car because of this

rather than merely speeding up their eventual purchase of a new car in the near future?

I'm assuming some were influenced by this. But I also expect a drop in the sales of eligible cars in the near future. Hopefully the increase in spending isn't countered with a sudden plummet in sales.

In other words, I hope we didn't spend billions merely to get people to buy a new car slightly sooner than they would have otherwise, all the while removing working used cars from the market that could have been bought by the poorer people (thus driving prices up for them).

[imdjh]

2. Yep, it's like the gun run: when it's over it's gonna be dry, dry, dry for awhile.

[JonQ]

6. My concerns exactly

spending billions to stimulate consumer spending might be a good idea (obviously it depends on the details).

Spending billions to simply shift spending towards a different month, without increasing the net spending, does not make sense. In that case they would have been better off merely handing the money to people and telling them to have fun, and try to spend it in the US.

[girl gone mad]

11. The problem with just giving everyone money is that it doesn't work.

Bush tried the "money gift" via stimulus checks and it was a complete failure.

Sector related liquidity injections are generally more effective, but I think it needs to be money for things that people wouldn't be buying otherwise.

In this case, we shifted the demand curve forward and we at least helped Toyota clear out old inventory ahead of a significant ramp down in production.

[phantom power]

3. Anybody know how much additional debt load was incurred by purchasers?

[Xenotime]

12. That question is irrelevant

When those people were going to buy new cars anyway.

[EssieM]

14. That's a huge assumption Xenotime isn't it?

What about the people who bought a car ONLY because it was such a good deal and a new car is oh-so-tempting? We considered it, even though we had a car with no payments. It appealed to us to have a new car with great gas mileage instead of the 18 year old hand-me-down Cadillac. It would have been a financial stretch we'd have considered except for the fact it meant our car is in excellent condition with 60000 miles on it, and the program would have seized the engine and junked the entire thing. That seemed WAY more wasteful than we were willing to do. Not to mention the fact that the $300 we'd save each year in gas would still not have compared to the monthly payment for a new car with great gas mileage.
The question is relavent because one has to wonder what will happen to those who find they cannot afford the payment? Will they be able to sell? Will the car's value hold? Will many people end up having their new greener car repo-ed? I am curious to see those numbers in a year, and I hope my fears are unfounded.

[SPedigrees]

4. The point of this program was to remove polluting gas hogs from the roads.

Also to encourage a trend toward fuel efficient vehicles (the copycat mentality is a powerful force), as well as adding a jump start to the economy via new car sales.

I'd have traded in one of our old cars for a new Honda fit or element, but our old cars are not even remotely clunkers. My geo metro got 38 mpg in its younger days and gets in the low 30s now, and his 1997 RAV 4 is fuel efficient for its size.

[JonQ]

8. How much energy does it take to make a new car?

And all the component parts? From mining the ores to make the metals and up.

It may prove better for the environment to keep your old car getting 20mpg than to scrap it and buy a brand new one getting 22 mpg.

I read a statistic once that most cars have produced more pollution at the time of their making than they will after that point.

[jakeXT]

5. foreign-headquartered =! foreign manufactured

But buying a Honda or a Toyota or any one of several other "imports" can be buying American, too.

Many "foreign" cars built by the Big Three's competitors are made in the U.S.A. — coming off assembly lines from South Carolina to California and providing jobs for tens of thousands of Americans.

"We make them here and they're built by American citizens and increasingly we're designing them here," said Kim Custer, spokesman for the Association of International Automobile Manufacturers, which represents Toyota, Mitsubishi, Honda, Nissan, Hyundai, Kia, Isuzu, and Subaru.

http://www.foxnews.com/story/0,2933,465005,00.html



The question about pay and unions still remains


The workers in these foreign-owned plants are Americans, too, even if they may not be union members. Most foreign-owned automotive plants in the U.S. are not unionized. And the simple fact is that even before the current recession, employment in auto manufacturing was falling in union states and rising in non-union, "right to work" states.

http://www.foxnews.com/opinion/2009/06/09/successful-auto-industry/

[steven johnson]

7. The real problem is you'd have to drive 126,000 miles @ $2.50/gallon gas to break even

Most of the clunkers weren't going to go 126,000 miles so how is it that the $4500 subsidy broke even in terms of gasoline price savings? And then the government lost money because they were getting less fuel tax receipts. On top of that, the vehicles destroyed had real value.

The people who took advantage of the program were eventually going to buy replacement vehicles anyway, so they purchased earlier than they would have otherwise. So there will be a downturn in sales.

On top of that, accorting to Edmunds, the average of profit for the dealerships went up from $1200 to $1700 for the Ford Escape and $700 to $1500 for minivans. So the people who weren't in the 'cash for clunkers' program paid too much.

http://money.cnn.com/2009/08/26/autos/clunker_price_rise/?postversion=2009082616

Apparently incentives and discounts will be coming in November and December but in the meantime the supply and demand will drive profits higher.

OK, so explain the social utility of the $3 billion that was spent. I can't make the figures work out.

If we assume that $4500 is a good proxy for the lost productive value of each of these destroyed assets, then how much reduced maintenance and fuel is needed to make this value-neutral on a cost-benefit test (ignoring any value from the multiplier effects of the primary (stimulative) purpose of the program)? On gas alone, we'd need to save 1800 gallons at $2.50 per gallon (assuming none of the oil burning externalities which are the secondary point of the program). If we get an average 25% fuel economy improvement (say from 14 to 17.5mpg), it takes 126,000 miles (~10 years) to payback in simple fuel savings. Well, that probably is more miles/years than most of these vehicles have left before they'd have been scrapped anyway. I'd guess half of that is a bit more reasonable average. But it isn't hard to see maintenance reductions saving half the $4500 dollars over a presumed 5 year additional life of the junked vehicle. If we saved just $450 bucks a year on maintenance of a 0-5 y.o. vehicle over a 10-15 year old vehicle, I'd say we broke even (given that the gubbmnt cost of money's about zero, and especially given that they own a big chunk of the mfg's).

Now, I'm definitely not claiming the buyer is saving money over this timeframe, but the consumption of new car would have happened even if we'd allowed the trade-in to be sold. So really, all we are doing is moving future consumption of consumables like gas, tires and car parts up from being distributed over the next five years into the present.



the destruction of value here

[jakeXT]

9. Most of the dealers haven't gotten their money, yet

Many dealers are still waiting to be repaid for the Cash for Clunkers incentives they gave car buyers and were allowed to submit paperwork seeking reimbursement until late Tuesday.

http://www.google.com/hostednews/ap/article/ALeqM5i_J2CDMBIZhobnHhGIYFCzqvR52wD9AAP86O0




The only thing that works is when people have jobs with good wages, even Henry Ford knew this




Government Responsibility for Full Employment

In a dynamic modern economy in which employment has replaced livelihood as a means of economic survival for the average individual, employment is a systemic political issue the responsibility for providing which lies with the institutions that operate the economy, not on individuals with livelihoods as in the static economy of the past. In the past, a baker or a blacksmith would inherit his trade from his father in a communal economy organized on cooperative principles. In the modern economy, workers are employed in piecemeal jobs defined by the division of labor in support of assembly lines in factories in a society organized on competitive principles.

Only a small number of individuals are self-employed in a modern economy. Jobs are provided for workers by the economic system regulated by government. Unemployment then is the result of dysfunctional economic policy, and not the personal fault of the unemployed. Once full employment is reduced from a prime policy priority to merely one factor among many in connected government policy objectives, failed statehood will follow. In the modern economy, unemployment is a political problem with economic dimensions.

http://www.henryckliu.com/page198.html

[econoclast]

10. Edmunds vs DOT

In tabulating the cars sold under the Clunkers program the DOT departed from auto industry convention. The auto industry usually uses just make/model. The Dot sliced things much finer. They used make/model/engine/transmission. So a 2wheel drive Ford Escape counts as a different model from a 4x4 Escape under the DOT counting scheme.

Using traditional auto industry make/model, Edmunds calculated the following top ten...

Rank DOT Edmunds
1. Toyota Corolla. Ford Escape
2. Ford Focus Ford Focus
3. Honda Civic Jeep Patriot
4. Toyota Prius Dodge Caliber
5. Toyota Camry Ford F-150
6. Hyundai Elantra Honda Civic
7. Ford Escape (FWD) Chevrolet Silverado
8. Dodge Caliber Chevrolet Cobalt
9. Honda Fit Toyota Corolla
10. Chevrolet Cobalt Ford Fusion


Those numbers as of 07Aug09
.

[IrateCitizen]

13. Wait for the sales numbers AFTER the program...

I think that's going to be one of the real yardsticks by which to measure the program.

My personal interpretation of "Cash for Clunkers" is that it did little more than front-load automobile purchases -- in effect, encouraging more people to buy NOW who would otherwise have bought LATER, much as zero-rate financing did over the past 10-15 years. I predict that we'll see a significant drop-off in automobile purchases now that the program has run its course, wreaking more havoc in the auto and auto suppliers industries.

[notesdev]

15. And 700,000 cars destroyed

And 700,000 people with significantly more debt than they had before... I wonder how many will be wishing they kept their old, paid-for cars when all is said and done.

Here's a beautiful Corvette being destroyed, thanks to Cash for Clunkers.

http://www.youtube.com/watch?v=qTYL-h5_hb4

Is there anyone who really thinks that destroying that car makes economic sense?