Free Market or Flea Market? Government Paying for Junkers

by Ron Daly

Have you seen those commercials for "mail us your gold" things? You put old jewelry in an envelope, mail it to these people, and they send you cash. Or so we're lead to believe the thought that people would pay handsomely for your bits of scrap metal.  

Now from "gold" to "old" in the next round of the government trying to boosting the economy. If your car was made after 1984 and gets 18 miles(or less)-per-gallon, you could qualify for an incentive under the "Cash-for-Clunkers" program from the Government of up to $4,500. Seriously. Click here for the WSJ article. The idea is to take people's old, low mpg vehicles and turn them into...well, what DO they do with traded-in vehicles? Scrap? Recyclables? Monster-truck rally? Is the goal to re-sell them to a developing country? We can't sell them here - that's half the point. Trying to drive up sales of new vehicles and defibrillate Detroit is the overall aim of the incentive. So, what happens? They take in old cars and you go buy a new one - presumably one with a high fuel-efficiency. For cars, it's 32 mpg and under $45,000 to get a $4,500 incentive. Small trucks need no price restriction, 23 mpg minimum for the $4,500. Large trucks have no price restriction and only have to get 17 mpg for the incentive. 

My predictions for this:

1) It'll go through, but it won't be much help in saving the car industry OR lessening our dependence on oil. 

2) The one place it might be good for automakers (with a focus on American automakers)? Maybe GM can move some Volts and Malibu Hybrids, two vehicles that are focused on reducing carbon emissions. 

3) Lambourghini is going to start classifying the Gallardo as an SUV 

4) While captive financing will be offered by the dealers, Credit Unions will start to find ways to capitalize on the program to make sure that the industry keeps its fair share of the auto loan pie. 

Anyone looking at this already? Share your thoughts.

Comments

[Jaxon]

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

[Denise Wymore]

I first heard of this program last night while watching television. Normally I TiVo right on through annoying ads but my husband made me stop to see this new program.

Here's the problem I have with it.

Number one - it's a very confusing program. Some might even say misleading. But that's marketing.

If you have a car that is less than 25 years old but more than 8 years old, worth less than $3500 and gets less than 18mpg, you may get a $3500 credit if you improve the mpg by at least 10 mpg.

Most people who drive these clunkers - and not just have one parked in the lawn - usually do so because it's all they can afford. They have no car payment, low insurance. They are not deliberately polluting the environment. That's the car they bought from GM 15 years ago when it was brand new.

As I read the rules on the Consumer's Report page:
http://blogs.consumerreports.org/cars/2009/07/cash-for-clunkers-faq.html?EXTKEY=I91CONL&CMP=OTC-ConsumeristRSS

It's not really about mpg as it is about old crap. Maybe GM wants to erase all evidence of their years of making only polluting piles of poo that lead to their bankruptcy.

Anyway - then you have to a buy a new car. Average price of a brand new fuel efficient green car? About $21K. Take away the government rebate, we're still financing about $18K. Insurance goes up. blah blah blah.....

I think this program is frosting on a pig.

[Credit Union Warrior]

@Denise Marketing doesn't HAVE to be misleading, and Government doesn't HAVE to be this wasteful. Alas, they often are.

$1 billion dollars later? We'll have fewer rusting vehicles parked outside our garages, more debt, and a higher cost of living. That's all.