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Cash for Clunkers - Just looking for honest education on it!?

Ok... after a great post on health care reform (thx to everyone for the comments, Yes even you Dave) I wanted to throw "Cash for Clunkers" out there and see if we get any feedback.

First off I get the idea and see the economic benefit from ramping up car sales. I also see and agree with the benefit of getting Gas guzzlers off the road. (Believe it or not I care deeply about Nature and our environment.)

Here's 2 issues I wanna bring up.

1. If a person had a clunker before... There's a pretty good chance that they did because in this current time, they couldn't actually afford a NEW car. The last time we used Gov. to help get folks into something they couldn't afford, we created the largest foreclosure housing crisis in the History of the World and accelerated us right into our current economic woes, right? Is it EVER a good idea to use tax dollars or Gov. influence to get people into luxury items they couldn't have afforded otherwise? I am not talking about things they need... I am talking about a NEW car. We gave them $4500 to go buy a Car that lost 20% of its value the second they drove it off the lot. In some cases it lost more than $4500 in value... literally the second they rolled out. I am not using this as a point to say we shouldn't have done cash for clunkers, I am just wondering if it will have residual side effects we should consider/be prepared for?

2. I am a firm believer that Automobiles are the number one reason for ridiculous debt in this country. So many people are driving cars out of their means and making several hundred dollar a month car payments that do not correlate to their income. I also believe that buying a car that is within your means is the single biggest step to getting your finances in order and starting a process of saving so that some day, you can roll in with the cash to afford the "car of your dreams." With that said as of this Monday 625,000 applications have been received for Cash for Clunkers, Thats 625,000 used cars (that ran or they wouldn't have been accepted) that are going to the junk yard. What will that do to the used car industry? Will people who have the sense to buy a car they can afford still be able to find decent used cars? Will the price of used cars skyrocket (supply and demand, right?) and force more people to borrow money to get into a decent used car? I honestly don't know the answers to this... I was just wondering?

Thoughts??


13 comments:

  1. When you say such nice things, I feel forced to respond....

    I love this post, as it segues so perfectly to your last post! Although you are “a firm believer that Automobiles are the number one reason for ridiculous debt in this country,” in reality the number one cause for bankruptcy is….wait for it…Medical Costs!

    http://www.consumeraffairs.com/news04/2005/bankruptcy_study.html

    That is why health reform is urgently needed. We need caps on out of pocket costs!

    As for the “cash for clunkers” program; and the “cash for appliances” program that is right around the corner, I have mixed emotions. The actual costs and harm to the environment for building a new, energy efficient car negates most of the savings in with better MPG — so environmentally, the impact is a wash. Economically, it was a much needed boost, both for auto sales, manufacturing and job creation/retention. That being said… better mpg cars + neutral environmental impact + economic boost = decent program, but not perfect.

    I totally agree with you that it is important to live within your means, especially buying a sensible car. But until high density living with wonderful public transportation is the norm, cars are a fact of life. I haven’t really thought this through, but maybe the deal should have been on a sliding scale, based on your income, and only good for vehicles that costs less then $20,000.00 or X% of your income. That is creative way to approach it, and at the same time, would help out those in the most need.

    BTW … What exactly did you mean "the last time we used Gov. [sic] to help get folks into something they couldn't afford, we created the largest foreclosure housing crisis in the History of the World”? Are you talking about the mortgage interest tax deduction? That certainly wasn’t the cause…as it has been around since 1986 (and before that all consumer interest was deductible).

    The government did help create this economic mess by massive deregulation of Fannie Mae, the deregulation in the Gram-Leach Act, coupled with the failure to regulate derivatives, but I don’t think it did anything particular to get folks into something they couldn’t afford. So what did you mean?

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  2. Dave,

    again thx for great comment.

    This may be the first time we kinda agreed on something since we both admitted we may not make it to the NFL.

    No argument that cars are a fact of life. I still contend cash for clunkers may in fact make it harder for folks to get good used cars.

    I don't get to wound about the environmental impacts, but I do think there is some positive there as well as the economic benefits.

    My reference to Gov. assiting people into luxuries they cant afford was in reference to Fannie Mae/Freddi Mac and of course sub-primes. Gov. pressure to approve sub-primes to "make everyone a homeowner" in my opinion is the biggest single factor in this recession.

    ****I am admitting to not being as educate on this subject as I probably should be.

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  3. Operative word is "may" not make the NFL. I feel prime. Put me in coach.

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  4. You feel prime. You mean our Salthawk Football days weren't your prime?

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  5. Interesting take, Cody. And on this one I think I agree with you. Unless the numbers say Cash for Clunkers dramatically helped the economy, I think it was a mistake. I've read that the used car market is now in trouble because of the loss of their supply. Used car lots depend on those old trade-ins. But with Cash for Clunkers, they were destroyed. I saw a lot of so-called clunkers sitting in car lots that still looked like decent cars. And for many people, a $1500 clunker is all they need. It sure beats the ride on the bus after all.

    Furthermore, I think you're right in that this sets a bad precedent. More and more we are allowing the government to control supply and demand. With health care, I have a little less problem because we're talking life and death. It's more than an economic issue. But not so with what type of car one is driving!

    Dave beat me to my other thought in that cars may be a problem leading individuals to debt, but they don't compare with medical expenses. Think about it - if you get in trouble, the lender has collateral. The car can always be taken back. Sure you'll still owe additional money, but giving the car back substantially reduces the debt.

    The same cannot be done with medical bills. You can't undue that last-resort trip to the ER where you were charged $1500 for a procedure that would have cost someone with decent health insurance $100 out of pocket to see a regular doctor at an office.

    ReplyDelete
  6. Jeff,

    first.. thx so much for your comment.

    Second... Don't ever agree with Dave, not allowed on this blog!!! (lol, jk)

    I know medical bills is number one reason for Bankruptcies.. so let me clarify what I meant.

    I think an automobile outside someones financial means is number one reason for living (day-to-day) outside someones means. Not #1 reason for causing bankruptcy but a definite factor in some folks not being able to afford Health Insurance.

    I wanna go back to Dave's thought on requiring health insurance... that is slowly becoming the best idea I have heard yet. Make it illegal to not have health insurance. Also make it easier for those that cant genuinely afford it to get Gov. assistance.

    You shouldn't have a $500.00 a month car payment.. and be able to say "I can't afford health insurance" thats silly.

    Now... does "Cash for Clunkers" make it harder for folks that can only afford a clunker right now, to find a clunker? i think it might but we will have to see!

    Thanks again Jeff.

    ReplyDelete
  7. Good points all. Cars certainly get a lot of people in trouble. And it is a joke if you have people driving a car with a $500/mo payment and yet arguing they can't afford health insurance. I hope there aren't too many of these people out there. Who knows? If so, these are obviously not the people I'm worried about.

    The requiring health care system is probably where we're going, whether it takes a year or a decade to get there. It will basically change health care from being a cost and make it into a tax. Is that a bad thing? I dunno. But I do know it will have some benefits. And we've done that with lots of things over the course of American history (i.e. Social Security/retirement). In many ways, I think it becomes inevitable as our lives and society grow more complex.

    ReplyDelete
  8. My points about Cash for Clunkers,
    Good idea to help auto industry and environment.
    Bad execution. You just know certain lobbyists had their fingers all over this.
    Should have been restricted to American manufactured vehicles only, Yes I know Toyota and Nissan make cars in the US, but if a car sale saves an american job, that is a good thing.
    It should have been restricted to vehicles of a certain age or mileage. In my case, I have a 1992 Ford with 170000+ miles. It did not qualify, but a recent model Hummer with 10,000 miles that earned the buyer a $100,000 tax credit when they bought it does?
    I probably would not have taken on more debt with all my medical bills, but it would have been nice to have it available.
    It will be interesting to see when this is all over, how many transactions were fraudulent.
    I know of one guy who was buying cars from the junkyard and trading them in. He claimed that the dealers were so happy to get the biz that they only gave a cursory glance to his faked insurance papers. He claimed that he bought 12 Kia's and hyundai's under family members names, and his plan is to sell them in a few months.
    I hope the dealers have recourse against him when the dust settles.
    I will be on the sidelines for the cash for appliances deal too, I bought all new appliances in the last couple years.

    ReplyDelete
  9. Thanks for the great comments guys...

    I think we can all agree on one point:

    I am right and Dave is wrong! Right?

    lol seriously thx for reading!

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  10. Sorry I missed out on the health care discussion, I've been out of town. I'm getting into cars for clunkers a bit late, so I'll just make one small observation.

    I think it's hilarious when I hear people talk about how they are "concerned about the used car industry." Something about that is just hilarious to me. How concerned? Do you lose sleep about it? I hear you though, I think that people have the right to a wide range of affordable automobiles.

    You know, after the bailout there was a big outcry (and maybe not by you Cody, don't think I'm putting words in your mouth) that we needed to be bailing out main street, not wall street. Cash for clunkers was a way to throw some money directly to main street. Then what do we hear? Concern trolling about the used car industry.

    I tell you what worries me the most? Newspapers that rely on used car advertisements to stay in business. It has the potential to be a huge problem.

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  11. My only concern as far as the used car market, is that people are going to see higher prices because there is less supply. Also, those on the bottom rung of society, that buy their auto parts used are going to have more trouble finding parts.

    ReplyDelete
  12. Nate,
    My personal concern (not even sure it was a concern, just a discussion point) was not for the used car industry, but for the person in the future looking to purchase a used car.

    Just wondering what the consequences will be for them, if any?

    ReplyDelete

I love the discussion in the comments.. so... GO FOR IT!

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