Friday, August 14, 2009

Cash for Clunkers Trickle Down Consequences

The United States will spend 3 billion dollars on the cash for clunkers program. What that really means is that the government will be transfering tax payer money, as well as future debt since we run a deficit, to the car companies and dealerships. Let's break down all the negatives.
1. This is a transfer of wealth to the auto industry. The market is not driving this growth, nor can it sustain this growth.
2. This transfer of US money goes to any auto manufacturer. Now, I'm not a protectionist, but the idea of spending "stimulus" money on imports is a bit crazy.
3. Along with increasing our national debt, individual debt is going to increase. Most people buy cars financed. Since you are incenting people that have "clunkers", which I'm sure are paid for, to exchange them for new cars with debt, you have added net new consumer debt, which is a large part of our problem to begin with. They should have made a provision that you had to buy the car cash, but that wouldn't have helped their banker friends.
4. The supply of used vehicles will decrease, causing the price to increase. Since the dealerships are required to scrap these cars, they are taken out of the supply. In a time of economic hardship, buying a used vehicle is a great way to avoid debt. A decreased supply will force more people to finance a purchase.

3 comments:

Troy said...

Man its depressing to see the car lots of "clunkers" about to be scrapped. There are some nice used cars to be removed from the market.

jrchaard said...

I know where you can get a deal on a couple of 15 passenger vans

Troy said...

You can't get rid of REAL clunkers with the program. The cars had to be insured for the past 12 months.