Cash for Clunkers - Destroying Wealth

Great Debates
301

I’m confused by the data. First of all, the list of trade-ins looks virtually identical before and during the ‘clunkers’ program. During the program, there were a couple of large luxury cars in the top 10. But both lists are full of SUVs and trucks.

As far as the top 10 sales before the ‘clunkers’ program, the data I posted was from May. It comes from cars.com

Their list:

* Ford F-Series: 33,381
* Chevy Silverado: 31,463
* Toyota Camry: 31,325
* Toyota Corolla: 23,576
* Honda Accord: 22,597
* Honda Civic: 20,723
* Ford Fusion: 19,786
* Chevy Impala: 18,709
* Nissan Altima: 18,408
* Ford Escape: 16,391

The list from your cite:

F-150
Silverado
Ford Escape
Dodge Ram Pickup 1500
Ford Edge
Honda Odyssey
Chevrolet Traverse
Toyota Tacoma
Toyota Camry
Ford Fusion

Frankly, my list looks more likely. Or do you really think the Chevrolet Traverse out-sold the Honda Accord? So I’m not sure why the lists are different, but I do note that your link appears to have some errors in it (look at the labels on the tables - they seem wrong).

And none of your cites speak to Edmund’s other points about the Clunkers program simply scavenging sales from the previous and next month. Note that Edmunds also made the prediction, based on their model, that the second billion dollars for ‘Clunkers’ would be met with far less demand, because the steady-state will have been reached. So far, that looks like exactly what has happened. And the fact that car sales appear to be returning to pre-clunkers levels even with the program still in place suggests to me that the binge we saw with the first billion was merely the delayed sales from the previous month, coupled with people moving their purchases up by a month or two to take advantage of the program. Otherwise, you would expect some permanent increase in sales with a government subsidy.

I don’t think we’re going to know the real story of what happened until maybe the end of the year, when the overal sales trends for the year can be compiled and we can see exactly what cash for clunkers did. If we see a dip in demand immediately before and immediately after the program, we can assume that it just had the effect of concentrating all the sales into one two-week period. If we see a permanent increase in sales after the initial ‘blip’, then we can say that the program is stimulating car sales, and we’ll have a good read on how many sales were actually created.

302

I love the flailing on this issue! It’s awesome to behold.

Gee, why might sales have peaked on the 29th? How about this article in USA Today on the 30th:

http://www.usatoday.com/money/autos/2009-07-30-cash-for-clunkers-program-suspended_N.htm

Perhaps it was news that the program was being suspended? Remember all the criticism from other righties that the government had seriously underestimated the demand for the program, therefore they couldn’t be relied upon to run a UHC program? Now, it’s that the program really only captured people who were buying anyway!

Beautiful. You remind me of Bill Kristol - well, in many ways, but particularly when he goes on the Daily Show with Jon Stewart.

303

That article is dated August 2 and appears to state the program was being EXTENDED through August 4, not that it was ending July 29.

304

The article was posted on the 30th. It appears that it was updated and substantially changed on the 2nd.

Here’s the headline and part of the first sentence, according to Google News:

Brakes put on ‘cash for clunkers’ plan
USA TODAY - USA Today - Jul 30, 2009
By Rick Bowmer, AP. By James R. Healey and Chris Woodyard, USA TODAY. The government suspended the explosively popular “cash for clunkers” program, …

My point isn’t that the program ended on the 29th, but that the reason that sales might have peaked on the 29th is that by the 30th, the message going around was that the program was out of money.

See for instance these stories from the 31st.

July 31

July 31

July 31
So, Sam is claiming that sales peaked because it caught those who would have bought anyway. This is at odds with the massive popularity of the program, and is better explained by the fact that starting just after the 29th, people were being told that the program was out of money.

305

I realize it’s not just a GD but a personal issue I’m wading into, so I hesitate to get in the middle of it, but I have to say - why are these phenomena necessarily mutually exclusive?

It doesn’t strike me as being at all unreasonable to say the C-F-C program draws in people who would have bought this year anyway, and would you NOT expect people who were planning on a vehicle purchase this year anyway to try to take advantage of the program before it ran out? Why is that an unbelievable prospect to you? It makes perfect sense. As it happens, I’d intended all along to buy a car this year to replace my crappy old Buick. If we’d had a C-F-C program in Canada I would have made sure to buy my car during the C-F-C program, and if they’d announced it was ending soon I’d have likely rushed to the dealer to get in on it before it ran out. There would have been no change in the total vehicles bought by Rick, just a shift in when Rick had bought them. (Since we don’t have such a program, I’ve already bought the car, a Hyundai Elantra. We love it.) Shit, why wait when you can save $4500 now? $4500 would certainly motivate me to buy a car a few months earlier than I’d been planning.

We won’t actually know the extent of the effect for some time as the numbers pan out, and I doubt you two will agree on what the numbers mean anyway, but I for one won’t be too surprised if it turns out Sam’s right. It sure makes sense on the face of it.

306

I tend to agree with Sam here. There seems to be so many built ins to the system that pigeonholes the buyers into a narrow group:

  1. The car must be worth less than $4500 AND be a gas guzzler. (If it is worth more than $4500, you trade it in and get your money instead of using the program.) No piece of crap Chevy Chevelles ; a pretty substantial nice car/truck when it was new, but it has lost a lot of value.

  2. The buyer must either be able to pay cash for a new car or have good enough credit to finance a new car. I can’t imagine a person who has enough money to drop cash for a new car driving around a “clunker”. I’m sure they exist, but it certainly isn’t common.

So, this person, to have good enough credit for a car loan, is pretty stable in his home and his job and hasn’t missed many if any bill payments lately. And this person has enough free cash at the end of the month to pay 400-500 dollars in a car payment.

I contend that this type of person would be in the market for a car anyways:

  1. Current vehicle was very nice when it was new
  2. It is now old; worth less than $4500
  3. Customer wants to part with it enough to incur monthly payments
  4. Customer has good credit and ability to make payments.

Why wouldn’t they buy a new car without the subsidy?

307

jtgain, those are exactly the people the program wanted to target. I feel like a bit of a broken record here.

But think about that group: they have cash savings, they have good credit, they drive a car for it’s reasonable lifespan.

This group of buyers are also smart enough to stop buying during a recession for fear of something going wrong. They are the reason Hyundai first started offering that “buy your car back if you get laid-off” program.

A smart consumer thinks about the stability of his/her future, and makes purchase accordingly. If your company is doing great, your division is exceeding sales, you know you’re in line for a nice fat year-end bonus, you go ahead and buy a car sooner.

If, on the other hand, you know sales are slumping. You know for a fact there will be layoffs at the end of the quarter. There is no way in hell you’d buy a new car and take on that financial responsibility.

Do you agree with any of that? If you had the money to buy a new car, but thought you might get laid off, would you buy it, or wait until you were more sure about your future?

That phenomenon is what causes a recession to go from bad to worse–people stop buying. And then all the other stuff follows.

Car sales stalled, look at the data for monthly sales.

So this program was PART of the stimulous package that was meant to get people spending again, to encourage demand so that the recession would slow/stop.

AND IT WORKED

It got people to RUSH out and buy a new car sooner than they would have. We have testimony to that effect. Yes, they were going to buy a car, but we don’t know when, and neither did the auto-industry. Dealerships were closing, factories were being shut down–those are bad things. There were a lot of people on the supply side running on fumes.

So this program encouraged people to go out and by the car NOW instead of waiting until the fall, or closer to winter, or maybe after Christmas, etc.

And it worked! People went out and bought cars sooner, now the dealerships have money, the auto-industry has money, insurance companies get a bit, employees get a bit, lots of people befitted because the cars were bought sooner, THAT IS A STIMULOUS

308

No, it doesn’t make any sense, and all the current data released prove you wrong. I don’t know what future data will show.

Why is it such a bad thing that the program ran out? That is a very well crafted stimulus, short and timely. People could have waited months to use it, and instead they rushed out immediately.

Look at the data I posted in the other thread and you will see why you are wrong. There was a base level of people buying each month, and that base level was LOWER as a result of the recession. This program would obviously cause some people to delay a few weeks to take advantage it. But it also encouraged people to buy SOONER .

It encouraged people to buy sooner.

That is a stimulus, that is why the program worked. You should be happy it run out, because that showed it was kept tight enough. It ran out as the markets because to pick up. Now people have increased confidence and are willing to make big ticket purchases again.

It encouraged people to buy sooner, that is why we believe it worked.

Ford had it’s first increase in sales!

309

Prove me wrong? I’m sorry, but I’ve made no predictions or claims. You are very confused.

If in fact the “purchase shift” position is wrong, we won’t know for sure for some time. It’s impossible to say whether the theory that the program is simply causing people to move purchases up a few months is true or not until those few months have passed. But having said that…

You’re very insistent on that point. And, of course, I agree it’s likely true. Forgive me, but you seem very confused as to the content of my post. First of all, I’m not taking a hard stance either way on whether the program was generally successful in helping the economy. Secondly, what I suggested might be possible is that the cash for clunkers program was… causing people to buy cars sooner than they otherwise would have. And in fact, that’s what Sam Stone is saying, too. Which is, you know, what you keep repeating.

Perhaps you are thinking of another poster. But I don’t actually see anyone saying that “buying cars sooner” wasn’t a likely result of the program.

310

emacknight:

I don’t agree with that. We are talking about a smart consumer who needs a new car, but is holding off on buying one because of a fear that he might get laid off. He decides to wait until economic times are better because he doesn’t want to get strapped with a new monthly payment.

Now, a new program comes along that will give him $4500 for his trade in instead of, say, $1100. That $3000 would probably take about $25 off of his monthly payment. That is enough to overcome his fears of losing his job?

311

Another effect it has is generating tax revenue for local governments, now badly hurting because people are not spending money and making revenue generating transactions. Cook county in particular is hurt badly because it is not getting the expected revenue from real estate transactions.

I have seen many articles claiming that even gainfully employed with no reason to think their job is not secure have been not spending, basically acting as if they don’t have any money. This plan seems to be aimed at getting those people to shake out of it and spend a bit. The environmental angle is just to make it sexy. They could have touted improved safety as well, but safety is not sexy.

312

Also, let’s say I was skittish about buying a new car because of the recession, so I would have waited 6 months to a year otherwise.

Now, with this program, I buy a car tomorrow. What happens 6 months to a year from now when the car dealers suffer because of decreased sales?

It seems as if this whole thing is a zero sum game. I don’t care what kind of deals you offer, I only buy a big ticket item like a car when I need it.

It seems like this is another “borrow from the future” idea.