Tuesday, August 18, 2009

Cash For clunkers

Vacation is over. Time to get back to the computer!

The “Cash for Clunkers” program is in full swing and the auto dealerships are very happy. People are buying cars again thanks to a gift from Uncle Sam. With all the money they are throwing around in Washington, it is good that a little of it is actually going to everyday people.

I would like to add just a few personal comments on the program.

Is the money really going to everyday people? Hopefully, yes. The Toyota Prius sold for $24,000 when it qualified for a tax credit of $3000 and if you wanted one, you had to go on a waiting list. Once the credit expired the Prius sold for $21,000 and there were plenty of them on the car dealership lots. Is the same thing happening now? Are the dealers jacking up the price they accept in the bargaining dance? Probably, some are, after all they need to make a buck too. But my feeling is that the majority of this money is going into the consumers’ pockets.

Congress funded the program with $1,000,000,000 (oops, now $3,000,000,000). Wow, that’s a lot of money. It was supposed to last until November. Wow, that’s a long time. It was supposed to fund the payment on 250,000 cars. Wow, that’s a lot of cars. Wait a minute. Is it really a lot of cars? Historically, annual car sales in the US run between 13 and 15 million vehicles. Currently, it is running at a rate of about 11 million a year. That’s a million cars a month or 400,000 a week. They funded about 4 days worth of sales. Of course, not all vehicles qualify. I think it is time for a few arithmetic lessons in Washington.

The dealers are supposed to scrap the vehicles, the idea being to improve the overall mileage for cars on the road. This is accomplished by replacing the oil with “liquid glass” and running the car, which essentially destroys the engine. This could lead to fraud. Some dealers might certify that the car was scrapped when it was not. Is there a paper trail that needs to be followed to make sure this happens? Luckily this is not the consumers problem.

What happens when the program finally runs out of money? My guess is that car sales will drop a bit but people will have been shaken out of their economic sleep and consider purchasing a new car. There also is pent-up demand for cars as people make their old vehicles work a little longer. Eventually they will want to replace the old clunker.

All in all, I’m happy they have put this program into place. I believe the money is going to the consumer, car sales are revved up a bit, and the vast majority of dealers will be honest.

Here is the official government website to get real information on the program:


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