Cash For Clunkers – I was right, they were wrong.

By AWC on October 13, 2009 • ( 0 )

The data suggest that critics of Cash for Clunkers who argued that it would just “steal” sales from the future were correct, and those who, like me, expected that a little stimulus applied to the car market would create some forward-going momentum were wrong. ~Andrew Leonard for Salon.com

Kudos to Mr. Leonard. His was one of the few articles that admitted the frothy excitement of how Cash-For-Clunkers would rescue us from oblivion were logically and economically unfounded. The damage has been done, here is the analysis.

In a previous post from August 16, two actually, I highlighted the most damaging aspects of the Cash-For-Clunkers program that would plague our economy. Well, the plague is now. Once again, we can thank our government for interfering in the free market and bestowing benefits to its chosen few while robbing the rest of us, all under the guise of “helping everyone.”

I for one, do NOT need any more government help. With the kind of help the government gives me, I’ll be in a cardboard box under the freeway in a matter of months.

The italicized statements below were my predictions of the damage the Cash-For-Clunkers program would cause. I followed my prediction with a relevant article and statements confirming the unfortunate reality.

Used car prices go up, hurting lower income families.
(Drop in supply creates scarcity, prices go up)

An Oct 7 article in the N.Y. Times stated, “Used vehicle prices shot to an all-time high last month, spurred by falling inventories…this summer’s wildly popular Cash for Clunkers program sent new vehicle sales soaring, taking dealers by surprise and clearing out inventories.” This affects the poor and the middle class disproportionately.

Used car sales go down, hurting used car dealers.
(Drop in demand, fewer sales, less revenue)

Used car sales did in fact drop 30% or more at used car dealerships, which tend to be local mom and pop businesses, affecting their families livlihood. “We’re struggling and a lot of us small guys are going out of business,” said James Dameron, sales and finance manager at Chase Motors in suburban Richmond.

Future sales are cannibalized for current sales.

When Cash-For-Clunkers ended, the U.S. automakers who were supposed to reap its benefits experienced plumetting sales. “September auto sales drop 23% from a year earlier. GM’s plunge 45% and Chrysler’s fall 43%; Honda and Toyota also report double-digit slides.”

New car prices go up, putting buyers off into the future.
(Surge in demand creates scarcity, prices go up)

According to an August 27 article on CNNMoney.com, “if you bought a car without a clunker in the last month, you’ve overpaid. Prices for cars during the clunker program went up for everyone. And if you absolutely have to buy a vehicle in the next two months, you’ll most likely pay more to get the same car. The wildly successful Cash for Clunkers program has thrown things out of whack. For the next couple of months…inventories will be low and car shoppers should expect higher prices and fewer choices, experts say.”

Used car repair owners/mechanics suffer from fewer repairs.
(Drop in supply, fewer repairs, less revenue)

The Fairfax Times in Virginia reports that local repair shops are down in revenue and customers due to the Cash-For-Clunkers program. “Cash for Clunkers is bad news for Bill Wiygul, whose family owns several automotive repair shops in northern Virginia. Business was booming, in part because of an economy that forced many consumers to hold on to their older vehicles and keep them up in lieu of spending much-needed money on newer models.” Mr. Wiygul went on to say he’s most infuriated with the fact that the government is supporting one segment of the auto industry over another, namely GM due to the government’s financial ownership in that company.