So how's that "Cash for Clunkers" working out for you?

Was this really a well-conceived incentive?

http://www.nytimes.com/2009/08/14/business/14ford.html

“Ford said on Thursday that it would add 10,000 vehicles to its production schedule in the third quarter and significantly increase its fourth-quarter output as well. The company now plans to make 570,000 vehicles in its North American plants during the last three months of the year.”

People are buying cars now; what will that do to demand for vehicles after the incentive is gone? American automakers ramped up production and paid out overtime to keep up with demand, but this demand is completely artificial. Potentially these people could be out of work now that the program is finished. What happens when we have excess inventory sitting on the lots for the next several years because people bought cars now?

http://money.cnn.com/2009/08/13/news/economy/retail_sales_July/

“Retail sales fell in July after two straight months of gains, the government reported Thursday, a drop that surprised economists. Without car sales from the “Cash for Clunkers,” the numbers would have been even worse.”

Retail sales have fallen since this program was enacted. So people that would have probably spent their money otherwise funneled it into the car industry instead of buying other goods/services.  To boot, these people now have $500/month car payments for the next five years.

http://www.cbsnews.com/blogs/2009/08/05/business/econwatch/entry5217824.shtml

“Sadly, the cash-for-clunkers program requires that vehicles traded in have their engines destroyed. This will raise the costs of used vehicles for poorer Americans. It will also raise the cost of used U.S. vehicles around the world: Cambodians are less likely to upgrade to newer, safer, less polluting, and more fuel-efficient used Corollas.

Perhaps the need to bail out a struggling U.S. automobile industry is enough to justify renewing the program, even though four out of the five top sellers are Japanese. But it’s a bit silly for politicians to claim that cash-for-clunkers can be justified by environmental or economic concerns, and even sillier for Americans to pretend to believe them.”

What will this do for the auto mechanics? Certainly this will take away a lot of business as there will not be as many older cars on the road in need of servicing. What about the poor? According to government statistics, they've just taken 665,000 cars off of the road, many of them in perfectly good working order. This will dramatically affect the used car market.

http://www.reuters.com/article/newsOne/idUSTRE57F12O20090816

“Volunteers of America and other charities that receive tens of thousands of cars each year said such donations have quickly fallen up to 12 percent — and fear a 25 percent drop eventually, or over $100 million — as owners rush to trade gas guzzlers for new fuel-efficient models while federal rebates last.”

http://www.ehow.com/how_2325207_donate-car-salvation-army.html

“Keep in mind that the process is a simple one that only takes a few minutes to activate.”

Many of these cars could've been donated to the needy.  Donating to the Salvation Army is not as difficult as you’d think.

http://www.baltimoresun.com/business/bal-clunkers-0728,0,3093927.story

“Not all auto recyclers are relishing the government’s new cash for clunkers program, which requires car dealers to destroy the gas-guzzlers they get as trade-ins from new car buyers.

Used engines and drivetrains are a big part of recyclers’ income from each scrapped car, and under the federal program those engines must be destroyed. The idea is to promote fuel efficiency and help automakers, but it comes at a time when more than a dozen U.S. auto parts suppliers have filed for bankruptcy this year.”

What will this do to the used parts market?

What I’ve discussed is just the tip of the iceberg. This was a completely ill-conceived and poorly thought out plan. But that’s the government’s m.o., right? They helped their buddies in the auto unions out short-term and the dealers and the rest of us (i.e. taxpayers that funded this) are going to be left holding the bag. Not to mention that tons of people bought new cars that they probably didn’t need and took on loans that they might not be able to afford. Unnecessary debt is what got us into this whole mess in the first place.

The government is not omnipotent and does not and cannot predict the fallout from their intervention in the market place. A few billion dollars of taxpayer money was dumped into a program that by any objective standard has been a failure. This money could’ve been better spent by the people that earned it. Instead, we redistribute it around to those that are more politically favored.

What got us into this mess was too much borrowing and too much spending. You cannot fix a problem caused by too much borrowing and too much spending by doing more borrowing and more spending.