Last week the Senate passed a bill called “Cash for Clunkers.” If you have not yet heard of this bill and wonder “could it really mean the government giving cash to people to turn in their clunker car?” You are correct.
The program is designed to offer $3,500 or $4,500 cash rebates to NEW car buyers who turn in older, less fuel-efficient models. The idea being that this will jump-start the car market. The proposed program is limited to $1 billion and expires in October or November.
The program takes effect within 30 days of being signed by President Obama, which he has indicated he would do. Most people expect this to actually be in effect around August.
In the face of huge deficits in our budget, our government continues to spend money it does not have. I agree that every social program and incentive put out by the government helps someone and has the impact of stimulating the economy on some level, but the fact remains you need to pay for this spending. Every dollar spent needs to be seen as an investment. And every investment needs to be evaluated based on a Return on Investment (ROI). I continue to be amazed that few are upset by this program. By most accounts this program will at best only help move 250,000 vehicles and many believe will actually increase the pollution generated.
This recession had a lot to do with consumers overspending and borrowing money they did not have and this program will do more of the same. It will encourage people to buy vehicles, presumably on credit.
The result of this will be a bubble and when the tax increases come to pay for this, our economy will slow down again. If you would like more details of this program, here is a very good summary.
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I would like the record to reflect that just because I haven't voiced concern over this particular program, I am outraged. At some point, the recklessness becomes so overwhelming that one can't help but bite her tongue and pick her battles, know what I mean?
You are 100% right, Scott (as usual) in that this will create another bubble. And? That's what they want. To the powers that be, a bubble means prosperity. There is no interest on the part of this administration or any other that has existed in recent years to exercise fiscal responsibility - why? Let the next sucker who takes over deal with it.
They do not realize, of course, that we have reached the end of our rope. So try as they might to desperately reinflate the bubbles that exploded in all of our faces starting in 2007, programs like this can only lead to disaster.
But we aren't thinking about the long-term implications, are we? It's all about the temporary fix and keeping up appearances.
HORRIBLE idea.
Grab a beer, kick up your feet, and hope you've got enough hard assets in your portfolio I guess :P
Posted by: Adrienne | June 22, 2009 at 01:06 PM
Let's not forget that the bigger picture is that you get older, less fuel efficient cars off of the road and replace them with newer more fuel-efficient cars. The reduction in fossil fuel consumption is a side benefit. The kick-start of a trend toward more fuel-efficient, even hybrid technology vehicles is worth a push... though, not being an accountant I couldn't tell you if the TCO balances out.
Posted by: Anon | June 23, 2009 at 08:26 AM
Buyer beware: You should do your homework prior to making a car purchase under the 'cash for clunkers' program. Various news outlets have highlighted some scams, both online and at the dealership that you should look out for.
See: http://tinyurl.com/nlv3ed
Posted by: Toella | July 24, 2009 at 05:20 PM
Car dealers are increasing prices for good MPG cars because of the increased demand (artificial) from the cash for clunkers program. Not being critical, but it is basic supply/demand economics.
With the price increases, some markets will will give consumers no net benefit. It is poorly written legislation. Especially since the turned in cars have a trade-in value of equal the scrap metal — because all cars under this program must be taken off the road. So some cars that qualify, may actually be worth more than the redemable voucher.
I don’t qualify for cash for clunkers because my car already gets good gas mileage. But my dad swears by the car buying process here:
http://tinyurl.com/laub3m
Posted by: Jaxon | July 25, 2009 at 01:46 PM