Cash for Clunkers May Cost Up to $45,354 Per Vehicle

Discussion in 'Economics' started by crgarcia, Aug 10, 2009.

  1. Cash for Clunkers May Cost Up to $45,354 Per Vehicle

    The "Cash for Clunkers" program has been a "great success", at least according to the government, and the auto industry. Within days of its kickoff, all $1 billion allocated to the program has been used up by Americans who have eagerly lined up to trade their clunkers for new vehicles.

    Some refreshingly honest reporting has come from, a car buying site that is telling the truth, in spite of benefiting from an increase in business and site traffic, due to the program. According to Edmunds, about 200,000 old low mileage cars would normally be traded in, every 3 months, in exchange for more efficient higher mileage cars, without this program.

    The highest rebate is $4,500, and the lowest is $3,500. If everyone qualified for $4,500 per vehicle, about 222,000 vehicles would have just taken advantage of the government's money. At $3,500, 286,000 vehicles will have been sold.

    I assume that, given all the raving, the government will eventually get around to assigning more money. It will take at least 2 or 3 months for the legislation to work its way through Congress. Meanwhile, if all buyers have qualified for the higher $4,500 rebate, the "cash for clunkers" program will mean a marginal increase in car sales of 22,000 this quarter. $1 billion divided by 22,000 means a net cost to the government of $45,354 per car.

    If all buyers only qualify for the $3,500 rebate, it means a marginal increase in sales of about 86,000, or a net cost to the taxpayers of $11,628 per vehicle. In all likelihood, however, there will probably be a mix of vehicles qualifying for various rebates between $3,500 and $4,500. Based upon that assumption, estimates that the average cost to the taxpayer will be about $20,000 per vehicle.

    Even most of the marginally extra sales really represent people who were going to buy a new car eventually anyway. They are just buying a bit sooner than they expected. Old clunkers don't last forever, and they are almost all eventually replaced. The government is shifting tomorrow's demand to today, stealing from tomorrow to pay for today, but at great cost to the taxpayer.

    The "cash for clunkers" program is yet another boondoogle - an expensive waste of precious taxpayer dollars. Government spending should be reined in, in light of the multi-trillion dollar unsustainable deficits that this nation now faces. However, if we must increase government spending, the money would be better spent on infrastructure and education improvements that might help bring jobs back to America, and encourage long term growth, rather than cosmetic improvements to the short term earnings of makers of high mileage automobiles, many of which are foreign companies.

    This government is, unfortunately, a reflection of the current state of economic immaturity that prevails in America. The vast majority of people, including most people in Congress, do not understand the forces that drive the real economy, and see only the short term view. That is how they get manipulated into allowing the Federal Reserve to behave like a slush fund for big banks, passing programs like TARP into law, and enacting programs like "cash for clunkers" which all abuse the taxpayers.

    Disclosure: No positions in any automaker.
  2. Like usual the government probably overpaid for the program.

    Once the first phase sold out overnight.
    The Government could have lowered the freebie in half and still sold out.
  3. $45K per car? I guess that's one way to look at it, though even at $20K I think the numbers are exaggerated.

    It's called a stimulus for a reason. It's not just the sales department making money. Finance and service will get a boost and old inventory has finally moved, not to mention a lot of worthless death traps were removed from the road and a lot of struggling dealerships were thrown a life line. Was it a waste of money? At only .4% of the total stimulus, it's virtually impossible to quantify the effect, positive or negative.
  4. This stimulas program is killing the used car dealerships.
  5. lrm21


    Anytime government take $1.00 to to payout .50 its a waste.

    I can't believe anyone thinks that "Cash For Clunkers" is not a waste of government money.

    This bullshit of the goverment needing to stimulate demand.

    Yes.. because without Keynesian programs people would just hole up in their homes and return to eating raw meat. Society would collapse.

    We are so far gone, we can't even tell anymore when they steal from us, we are just so happy for the little scaps.

    "thank you sir may I have another"
  6. How much is TARP costing. There does not seem to be much on that.
  7. In theory TARP is to be repaid. Some has.
  8. Maybe they mean that the gov't is spending $45k per every $25k car,
    by bailing out a company that will go bankrupt again, anyhow?
  9. Since so much of what the government has done since WWII assumes Keynesian economics works, I think for sake of this discussion we should assume it works too. I'm not saying I'm in love with the theory, but singling out the clunkers program as waste doesn't make sense when compared to the money already "invested."
  10. Previously, the tax code was a vehicle to motivate people to certain actions, as the % of people with low or no tax liability rises now we'll see rebates instead of credits or programs like cash for clunkers.

    In NY they now are offering $200 back to school cash for food stamp and welfare recepients. This applies to people who have no kids in school or have violated welfare rules.
    #10     Aug 10, 2009