As with most government programs, instituted by the elite organization known as our elected officials; the Cash for Clunkers program will do more harm to the U.S. economy and will have a direct impact on many American consumers and industries.
When I write the blog articles for www.accuratecars.com I try to stay out of the cesspool of politics; but this time it will be a challenge.
As you probably know; five days ago, the Cash for Clunkers program was activated to help stimulate the sale of new vehicles. Our elected officials set aside 1 billion of our tax dollars to buy used cars. Today, the announcement was made that the 1 billion dollars has dried-up and that “elite organization” of our elected officials are looking to fund it with an additional 2 billion of our taxpayer dollars, to extend the program. In simple terms; the American taxpayer has given the initial down payment for a large number of new vehicles that have been sold in the U.S. in the past 5 days.
“Cash for Clunkers” gives a potential car buyer a taxpayer funded cash incentive up to a $4500 trade-in allowance for their used car, and the trade-in allowance is based on the consumer buying a new car. With the initial 1 billion dollars ( $1,000,000,000 ), having dried-up in the initial 5 days of being activated; at the maximum allowable amount of $4500 per vehicle, that is over 222,222 vehicles that have been cashed-in for this incentive.
To be eligible for this taxpayer funded cash incentive, the consumer takes his vehicle to a franchised car dealership and the dealer then enters the information into a government website. The trade-in vehicle must be a 1984 model or newer. While the initial thought of receiving at least $3500 and up to$4500 in trade-in allowance for an old car sounds great, we must remember that the trade-in allowance is basically a taxpayer-funded subsidy. Also, while getting a 1984 model piece of junk off the road may also seem like a good thing; how many 1984 model cars are going to be traded in? It seems likely that many of the trade-in vehicles would be mid ’90s model vehicles and those used cars are what many budget minded consumers are looking for…..a cash car.
When the consumer trades in his vehicle for the taxpayer funded incentive; that trade-in vehicle is destroyed. The oil is drained from the car, a sodium based solution is put in the engine crankcase and the engine is then started and runs until it locks-up. Rendering the trade-in vehicle unsellable is the first step in disposing of the vehicle, which is what the Cash for Clunkers program requires.
To sum it up:
- We, as taxpayers are subsidising new car purchases across America. We are buying trade-in vehicles that we may give as much as $4,500 for and then it is then destroyed and disposed of.
- Many of these trade-in vehicles would be useful to low income families or non-profit organizations, but instead they are destroyed. These are the same low income families that the elected officials say that they are “protecting”….when they are campaigning for office.
- The supply of older, used vehicles gets smaller. This will simply create a market demand that will push vehicle prices even higher.
- Along with the shortage of complete vehicles; anyone needing to replace a major component, such as an engine or transmission would be required to pay more money for the replacement parts. After all, if you destroy a used engine and transmission, then an automotive re-builder has no foundation to rebuild the component from.
- As for state revenue: Every time a vehicle sells (whether new or used), most states collect revenue in the form of state sales tax. If so many used vehicles are destroyed, then there will be less vehicles in the market and less vehicles to collect the sales tax on. Many states across America are already claiming that they are concerned with their budget finances; this will simply make their annual tax revenue even less.
- And what about the automotive repair industry? Touched on earlier; this is everything from automotive parts and suppliers and trained automotive technicians. With so many cars removed and destroyed, there will be no profit in continuing to manufacturer certain parts for specific cars and there will be no need for the repair technicians to continue working on certain cars.
In short, the Cash for Clunkers program will cost a whole lot more than it produces. On the front-end it is an incentive for a consumer to purchase a new car. But just like throwing a rock into a still pond, there will be sound waves that come out from the impact of the Cash for Clunkers “splash”. These waves will be in the form of fewer cars in the market, higher prices for the initial purchase of a vehicle, higher prices to maintain a vehicle and higher prices to repair a vehicle.
Just like the sub-prime Fanny Mae and Freddy Mac loans assisted in “screwing-up” the housing market; the Cash for Clunkers program will assist in “screwing-up” the automotive industry. Regardless of what you think about “buying American”; the majority of the vehicles being purchased under the Cash for Clunkers program are GM, Ford and Chrysler products; and two of these companies are in bankruptcy and would already be “washed-up and rotting on the beach” if it were not for the American taxpayer. In the next few months, many of these subsidised vehicles will be repossessed and this will cause other like-vehicles to lose value rapidly, leaving many of the good-paying consumers to owing more money on the vehicle than what it is worth….just as the high foreclosure rate caused a similar scenario in the housing market.
In closing: It is always smarter to buy a used car. The only time there are incentives or cash rebates in the new car industry is when the market is weak and the consumer sees the excessive retail price of a new car. At www.accuratecars.com we specialize in Honda and Acura automobiles and because of our low overhead, we can acquire, service, clean, and market our Honda and Acura vehicles at a much more efficient pace than our competition. In addition, our vehicles are a better quality and are a direct reflection of the confidence that Honda and Acura vehicle owners have place in our Service Department for well over a decade.
At www.accuratecars.com always expect certified pre-owned quality in our Honda and Acura vehicles.