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.
