There’s one law politicians always choose to ignore. Unfortunately, it’s the immutable Law of Unintended Consequences.
It was sitting out there screaming, “Look at me,” when Congress passed the Cash-for-Clunkers program, but no one in Washington, DC paid any attention to its plaintive wails.
So now we all get to live with the unintended consequences of this unmitigated disaster on wheels.
The following list probably doesn’t include all the problems C4C will cause – for the fact is that all the unintended consequences may not be known for years – but it’s a pretty good jumping off point.
1. You think it’s hard to find a good, honest mechanic now? Fewer clunkers on the road means fewer clunkers being repaired. Repair shops that specialize in older cars will really feel the pinch and many will undoubtedly go out of business.
2. Brother can you spare a muffler? Spare parts will cost more. Cash-for-Clunkers regulations dictate that any spare parts must be scavenged from the clunkers within 180 days. After that, all remaining parts – no matter how valuable – must be shredded. The Law of Supply and Demand dictates that scarcity of spare parts will lead directly to more expensive spare parts. Collision repair shops that depend on buying useable doors, hoods, and other body parts from salvage yards will undoubtedly see price increases.
3. Inflate to $4,500. Older cars will cost more, pricing them beyond the means of the poor who need them most. Since the Cash-for-Clunkers law requires that all trade-ins must be destroyed, the program has taken 690,114 (and counting) vehicles off the used-car market. A contracting supply will lead directly to price the smaller pool of remaining used vehicles. Unfortunately, that means the low-income people most likely to buy clunkers will not be able to afford them.
4. Blowing bubbles. Remember when Barney Frank railed against lenders who enticed low-income people to take on debt they couldn’t afford? Keep that in mind because that’s exactly what the government’s Cash-for-Clunkers program does with cars instead of real estate. In effect, when nearly 690,114 clunker drivers traded up to more expensive new cars, they took on piles of new debt and higher monthly payments.
5. Bubbles burst and clunkers crash. Cash-for-Clunkers unleashed pent-up demand for new cars that probably would have been made sometime down the road anyway. The Cash-for-Clunkers sales bubble cannot be sustained and will, therefore, reduce the number of new cars sold down the road. It’s likely that we just spent $3 billion simply to encourage hundreds of thousands of car buyers to make their purchases a few weeks or months earlier than they would have without the program.
6. Domo arigato, Mr. Obama. The Japanese economy was stimulated more than the American economy. According to the latest stats, eight of the top ten cars purchased under Cash-for-Clunkers were Japanese or Korean. Most of the ones traded in were American-made. Asian manufacturers saw their market shares increase and American manufacturers saw their shares decrease. In effect, Cash-for-Clunkers stimulated the Japanese economy at the expense of the American taxpayer.
7. The Clunker Children’s Fund. When more old cars are destroyed, it means fewer old cars will be donated to charities that depend on those donations for funding. Numerous charities say they’ve already seen auto donations drop substantially.
8. Let them eat carbon. Those who replace their clunkers with new cars will see their monthly payments increase, giving them less discretionary income for other purchases.
9. Baby you can drive up the price of my drive train. Engines and drive trains have always been the most valuable parts of clunkers. They’re often rebuilt and put back in other serviceable used cars. As the clunkers’ engines and drive trains are destroyed at the dealerships, it will cause prices to increase.
10. Bear market for junkyard dogs. Engines and drive trains have account for about 80% of the value of a scrapped car. But Cash-for-Clunkers regulations require that the engine and drive train be destroyed before the car leaves the dealership. So not only are salvage yards denied their most valuable products, they’re given just 180 days to sell any remaining parts they’re able to scavenge. After that, each car mus be shredded and sold for scrap value – sometimes no more than a few dollars.
11. Drill, baby, drill. Strange but true: research shows that the purchase of new cars cause people to change their driving habits. CNW Marketing Research says that clunkers were driven only about 6,200 miles in 2008, but new car owners drive an average of 12,000. Even with better gas mileage on the new cars, they’ll burn an average of 61 extra gallons of gas annually. Multiply that by 690,114 vehicles, and those wasted gallons of gas really start to add up.
12. Sticker shockin’ it to the man. We’ve had an oversupply of cars for the last couple years because automakers didn’t anticipate the 2008-2009’s steep drop in sales. That made it a buyer’s market. In response, automakers reduced production, bringing it in line with demand. Cash-for-Clunkers has now flipped that situation upside down and created shortages. Short supply leads directly to higher prices.
13. Don’t mess with taxes. Surprise, surprise. Not many of those rushing to take advantage of the Cash-for-Clunkers program are aware that the government’s $4500 “gift” is taxable.
This post was last modified on January 26, 2021
View Comments (14)
Many of these negative consequences would have been avoided if the politicians had done as the car donation charities requested, which was to give them the cash for clunkers cars. Those cars in poor shape would be junked, not destroyed. Those in good shape would be repaired, if needed, and either sold or given to lower income families.
Be careful, Joe...You've scratched the surface of their golden arguments and found sterling. Get ready for repeated arguments that they are misunderstanding and regurgitating. The most ridiculous thing about the majority of these arguments is that they are based on very basic economic ideas(not even 101, more like intro to) or glossed over facts(IT R JAPANESE CAR SO IT R COME FROM JAPAN!) and then repeated so much that people believe it. Right on for fighting nonsense(and it's not about democrat or republican, it's about morons pulling their heads out of their asses)
Hey Joe, consider it done.
This whole thing is so familiar. Help people buy big homes they can't afford to make payments on, three years later, bankrupt, they move out, government ends up with clunker houses. That worked, so now we deserve a nice new car. Why not? We can always go back to taking the bus, right?
What a country.
Sorry, Fred, the 'buy big homes they can't afford' problem is due to DE-regulation not 'helping people'.
'Government ends up with clunker houses' is a reaction to that problem so that your neighborhood doesn't become blighted with boarded-up homes used for drug deals and thus bringing down the value of your home.
Joe, you moron. Government, read Clinton, pushed banks to give loans to unqualified buyers so that "everyone" could experience the wonders of home ownership. What many ended up experiencing was the wonders of home foreclosure. How nice.
On your consequences (or, the 'dark cloud for every silver lining'):
1) Possibly. How many repair shops that 'specialize in older cars' are there? This sounds a bit like an effect looking for a cause. Approx. 690,000 cars were turned in under CARS. As of 2006 there were about 250,000,000 registered cars. That means that about 0.276% (correct my math if I'm wrong) of registered cars were affected. If you can show that less than a third of one percentage point will make that huge of an impact, I'd really like to see it.
2) The logic in this may not work they way you want. If there are fewer cars, then there are fewer cars needing repair. And, see point #1.
3) The top 10 trade-in list is SUVs, two vans and some trucks. A quick check of my local paper shows plenty of crappy cars still available for under a grand. A higher turnover of newer cars will eventually 'trickle down' to the secondary and tertiary markets which translates into newer, more efficient cars becoming available to lower income people. You still believe in 'trickle down', right? And, see point #1.
4) Maybe not (unless some specific evidence is forthcoming?) The 'credit crunch' didn't go away overnight. If you didn't qualify for new loans before the CARS program, you probably didn't during. You also wouldn't have had up to $4500 to throw down as a down payment. If you bought a stripped-down Nissan Versa (MSRP $9900) with that $4500, on a 5yr loan with 8.9%, you'd pay about $111/mo. Without that $4500, your payment would be nearly double.
5) I like this: It didn't really help much, and if it did help it was just temporary, and if it was temporary, it was just preempting future purchases. If this logic wasn't so twisted, it would be painful. If a business offers a rebate or puts on a sale to bring in customers and sales go up, it's considered a success. If government does it, it's 'stealing from the future'?
Part of the purpose of a 'stimulus' is to break the downward cycle the economy goes through. It appears to be working. No one was expecting a 'perpetual motion machine' with tax dollars.
6) You're not for market forces? I'm confused? So, not only should there not have been a CARS programs, but it should have dictated which brand of cars should be bought? How many 'American' cars have parts made in Mexico? How many are made in Mexico? The Corolla, Camry and Accord are made in the USA (#1, #3, and #8 on the CARS list). Their plants had to put on extra shifts or run them at full strength to keep pace with demand. At what point is this considered successful?
7) Charities have seen them drop because the economy was down and people were holding on to their older cars. Oh, and, see point #1.
8) Why? Virtually every car on the trade-in list had a higher purchase price than the car that replaced it. And, according to Edmunds.com, the average age of the car turned in was 14 years old. Can you get a 15-year loan for a car? That would make the payment for the car in #4 under a hundred bucks! Cool!
9) Actually, the transmission, driveshaft and rear-end can be salvaged. Remember, the purpose was to get inefficient cars off the road. Why would you want the government to hand out $4500 and then put that engine back on the road? Oh, and see #1.
10) Yeah. See #9 and #1.
11) 'CNW Marketing Research'... why does that name ring a bell... oh! Right... these were the "From Dust to Dust" guys that said an H2 was cheaper to operate than a Prius and then had to 'update' their report later to show that, no, the Prius is cheaper to operate than an H2. Forgive me if I hold their research as suspect.
12) Hmm... it's a temporary bubble with permanent affects? You can't have it both ways. Again, is there a problem with the 'market correcting itself'? This supply shortage has more to do with a few key models and shipping than anything else.
13) Uh, no, it's not income and it's not taxable. Go read the bill.
Oh, what's the point. You aren't actually concerned with logic and results, you just want to whine about anything that is associated with 'democrats'. Forget I wrote anything.
Sorry, Joe, but even the guy who first conceived Cash-for-Clunkers thinks it was a waste.
_______________
Alan Blinder, a Princeton professor who was among the first to push an auto sales incentive program in the United States, doubted it provided much stimulus, in large part because it was in effect for only a month.
"Most of the idea of any stimulus is to pull spending up from the future, but it doesn't make any sense to design a program that only pulls up spending by one month," said Blinder, a member of the Council of Economic Advisers during the Clinton administration. "Why in the world would you make it a one-month program? The Germans didn't do that. The British do that. When I designed a mock version of this I was thinking of it as a one-year or two-year program."
Was the $3 billion wasted as a stimulus?
"Yeah, mostly," he said. "It provided a lift to GDP [gross domestic product], but it was so fleeting."
http://www.washingtonpost.com/wp-dyn/content/article/2009/10/01/AR2009100103573.html?wprss=rss_nation
Sorry again, Joe. Looks like we were correct. At least that's what the Manchester Union-Leader says:
WHEN JEFF KANTOR of Car World in Candia first learned of the Cash for Clunkers program, he wanted to be sure his auto recycling business would get its share of cars.
"We knew there would be some good cars and it would be very important to our business to get involved," Kantor said.
At that time, $1 billion in federal dollars was put toward the program. That money was gone within a week and the program was extended. But the six-month deadline for crushing the cars was not.
Kantor said more than 800 "clunkers" have come through his lot. He has hired two extra staff members to deal with them, but only about half have been processed. He said he runs a "green business" and recycles everything he can, making sure all fluids are drained, mercury switches are disposed of properly and that all good parts on the vehicles are recycled.
He is concerned that he and other auto recyclers will have to crush perfectly good parts if the deadline is not extended.
Kantor and other members of the national Auto Recyclers Association have been working with their legislators to get the extension.
"With so many vehicles going through automotive recycling facilities in such a short period now, there is a high probability that without regulatory relief many valuable parts will be lost, thus resulting in diminished profits for automotive recyclers participating in the CARS program," according to a legislative action alert from ARA.
Kantor said he was heartbroken when he saw the number of quality cars coming in to be crushed.
"What will happen is we will be crushing quality parts that people in our state will need to keep their cars running and on the road for the next year or so," Kantor said.
Each car turned into a dealer under the program had to have its engine disabled; the engine gets crushed with the cars.
Kantor said the Cash for Clunkers program is having unintended consequences.
"They didn't think about the auto repair shop that needs an engine for one of its customers, or low-income families that might need an engine," Kantor said. "One million engines are being crushed that were perfectly good."
Fred Kelley, owner of Fred's Garage in Candia, said it is difficult to find used motors now. If one is found, the cost is much higher.
Kelley said he had a customer with a 1999 Ford pick-up that needed a motor.
"About a year ago, I could have bought that same motor for four or five hundred bucks. That same motor if you can find one . . . is running 1,200 to 1,500 bucks because there are none out there," Kelley said.
He said the price of used cars has also gone up.
"The price of used cars is going out of sight. If someone needs a used car now, they are going to pay," Kelley said.
http://www.unionleader.com/article.aspx?headline=Clunk+The+clock+is+ticking&articleId=e233816f-2eaa-48dc-9d61-d01cdd9f5bd6
From PlanetGore:
When Congress gave away $3 billion for buyers to trade in their “clunkers” and buy new cars in August, lawmakers thrilled as buyers swamped showrooms to take advantage of the big discounts. “Cash for clunkers has captured the public’s attention . . . (it) has the possibility to truly jumpstart our economy,” said Rep. Candice Miller (R., Mich.). Other, more sober analysts, warned that the clunkers program was only stealing from future sales.
September sales are in, and sobriety can take a bow.
Edmunds.com reports that “September’s light-vehicle sales rate will fall to 8.8 million units . . . the lowest rate in nearly 28 years, tying the worst demand on record. After the cash-for-clunkers program boosted August sales to their first year-over-year increase since October 2007, demand has plunged. In at least the last 33 years, the U.S. seasonally adjusted annual rate has only dropped as low as 8.8 million units once — in December 1981 — with records stretching back to January 1976.”
“Many people regard February as the darkest month of the recession, but even then (sales were) higher, at 9.1 million units,” adds Edmunds.com statistician Zhenwei Zhou.
But sobriety comes hard for Washington. Now NHTSA says that, despite burdening manufacturers with $60 billion in new costs, its new 35.5 mpg fuel mandate will stimulate the economy by boosting auto sales by 65,480 vehicles through 2016 because Washington “expects stronger consumer demand for fuel-efficient models.” Sure.
700,000 decaying autos is going to create an environmental problem as junkyards try to figure out what to do with toxic fluids and metals.
I wouldn't assume 3 & 4 were unintended. Both have the effect of increasing business from banks.
That should read FOR banks.
Beware of a government bearing gifts.
The credit is taxable? HAHAHAHAHA!!! Too funny. Wait till people find out their $4500 is really $3500 or whatever. It's a double boondoggle.
The bit about rising prices of used vehicles is true, it seems. A friend of mine that works at used car lots & auctions has seen some bizarre prices on really junky vehicles. I'm sure that the slow economy & cost of new cars has a lot to do with it too, but this seems to be adding some fuel to the fire.