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  • Cash for Clunkers is Another Bailout for the Auto Industry

    Today, the Senate could pass a Food and Drug Administration bill that would grant the agency new authority to regulate tobacco products. Slipped into that bill is a newly introduced amendment that would, for one year, attempt to boost car sales and reduce carbon dioxide emissions:

    Sens. Debbie Stabenow, D-Mich., and Sam Brownback, R-Kan., introduced an amendment Tuesday that would set up a program that allows consumers with older, less fuel efficient vehicles to trade in their “clunker” for a voucher worth up to $4,500 toward the purchase of a new car that must get at least 22 miles per gallon or an SUV or pickup that gets at least 18 mpg — clearly a focus on U.S. manufacturers. Buyers of small trucks and SUV’s fare better. If the new vehicle gets at least 2 mpg more than the “clunker,” a $3,500 voucher is issued; for new trucks or SUV’s getting more than 2 mpg, the new car owner gets $4,500.”

    On paper, it sounds great. $4,500 for a more fuel-efficient vehicle. Everyone loves more miles to the gallon. But there’s the law of unintended consequences and the cash for clunkers program is no exception.

    First, it could very well backfire environmentally. Maybe a few more miles-per-gallon improvement will emit less carbon dioxide per mile, but increased fuel efficiency often leads to more driving and new cars “constitute a miniscule source of overall carbon dioxide emissions.”

    Staying on in the issue of environmentalism, the pollution costs of constructing a car could exceed the polluting costs of running a car. One study by “Environment and Forecasting Institute in Heidelberg, Germany, looked at the full impact of a “medium-sized car” driven for 13,000km a year for 10 years. It concluded that the extraction of the raw materials for each car alone produced 25 tonnes of waste and 922m cubic metres of “polluted air”. This compared with 2,040m cubic metres of polluted air for the full life-cycle of the vehicle, meaning that the manufacturing stage was roughly responsible for 45%.” Although refuting studies say the manufacturing is closer to 20 percent of the car’s total emissions, a Carnegie Mellon study found “the manufacturing stage was responsible for 59% of all “toxics” (mercury, etc) released over the car’s full life-cycle.”

    Secondly, brand new cars aren’t even a consideration for most consumers. They go straight to the used car market, especially in a recessionary environment. This program would largely distort the used car market in a number of ways. If the idea is to get older cars off the road, the supply of used cars will be reduced at a time when demand has been increasing. Economics 101 suggests this will raise the sticker prices of used cars for people who can barely afford them in the first place. Driving up the cost of older cars may be an intended consequence for policymakers to encourage people to buy new, but it’s a bad deal for consumers.

    Again, because the idea is to get older, “inefficient” cars off the road, cash for clunkers distorts the used car part market. In a good Q&A the USA Today about the cash for clunkers program, one question reads, “What will the dealer do with my old car?” The answer: “Gives it to a salvage operator. The engine, transmission and some other parts must be destroyed so they can’t be reused. The idea is to cull fuel-thirsty, polluting drivetrains. Operators can resell other parts, however.”

    Back to Econ101. Reduced supply drives up the price of used auto parts and these engines and transmissions would probably be more efficient than the ones sitting in real clunkers at junkyards now.

    Third, there’s a cost involved. The estimated cost of the Senate bill is between $3 -4 billion, money that will come from the stimulus bill. But if a similar program in Germany provides any forecast, it will cost more. In Germany’s case the program has become three times more expensive than what they initially budgeted. And intended to stimulate the economy, the program instead simply shifted spending.

    Retailers, for instance, say the bonus is shifting spending patterns rather than creating demand. Higher February car sales coincided with falling turnover at consumer electronics stores. Stefan Genth, managing director of the HDE retailers’ federation, slammed the bonus last week, saying it was “sucking out spending” from the retail sector.”

    Of all the energy and regulatory provisions out there to reduce carbon dioxide and help the auto industry, this certainly isn’t the worst idea. It’s like breaking one window as opposed to three. But you’re still breaking a window. Let’s call it what it really is: an auto bailout in disguise.

    Posted in Ongoing Priorities [slideshow_deploy]

    28 Responses to Cash for Clunkers is Another Bailout for the Auto Industry

    1. MAS1916 - Denver, CO says:

      I am keeping my clunker as long as possible. Paying $30K for a new, fuel efficient aluminum death trap isn't my idea of fun.

      Government intervention in this industry has opened a black hole down which trillions of taxpayer dollars are now positioned to fall. Obama can't run a manufacturing company. Who in their right mind would buy from a company or invest their money in a company that He ran?

      There are so many pitfalls in running an auto manufacturing firm or for that matter – any firm that was the size of GM. (for a top ten list of ways the govt. is looking to handle GM, you can hit: http://firstconservative.com/blog/political-humor… )

      Obama and government leftists will also be in a position to demand other un-marketable changes including fuel efficiency standards. They will insist on overpaying (in terms of market value) UAW members as a payoff for campaign support.

      In the end, Obama has ensured the failure of General Motors by intervening. The only way to save it is to allow the company with its private shareholders, to proceed through bankruptcy court. Airlines have done this successfully. So can GM.

    2. Whicket Williams Kin says:

      I really do not understand this wealth redistrubution business. If a person earns money, they respect it. If you give it to them, they throw it away as quickly as possible. If you take all the money from those who have earned it, and give it all to those who refuse to work, within a couple years it will be right back where it was at the start of this insanity. The only way you could ensure that the nonworkers kept any would be to but them on welfare, which we have been doing all my life.I say, stop hurting people by taking away their self respect by putting them on the dole. That will sap all the self respect right out of a person, and make them feel worthless, and they won't even take care of their family. They feel worthless when they are told that they cannot make it on their own. I know. I nearly starved to death once, because I could not bring myself to beg.

    3. Larry, in the Republ says:

      This bill is obviously presented by the very SAME idiots who seek to "tag" ammunition! Or the folks who insist on forcing car makers to build aluminum cans with spartan interiors for the sake of "SAVING THE ENVIRONMENT", instead of themselves buiding highways that "actually" move traffic along and not sit in quagmire and idle pollution! Instead of "investing" $3500 or $4500 into "hoping" this will incite the purchase of a brand new ObamaMotos LLC vehicle, just GIVE the money to predetermined,lawfully operated automotive shops. Who then install upated engines and pollution control devices on existing "used cars", whether privately owned or on a lot for resale? BY NO MEANS should we offer any of this money to GM or Chrysler dealers to revamp their older stock and used fleet! Remember- these are the SAME vehicles NO ONE wanted in the first place and should be allowed to pass away in peace. They can then become part of the Cap and TAX voucher scam that will run rampant throughout the Salvage and METAL reclaimation industry in the months and years to follow. This will occur because no one will be able to run a smelter or foundries because of the high cost involved to heat the iron to 2700 degrees farenheit to melt it! The "NEW" trade hot "stock" that will be unregulated and subject to abuse will of course be the Enegy use "VOUCHERS" themselves. People will open up Salvage/reclaimation businesses, take the Fereral money available to start up a "NEW" small business- then do nothing. They will simply take the vouchers as provided by Big Brother, and trade them: on a black market! Them the same scam will obviously run rampant throughout the auto sale and resale markets using the "Cash for CLUNKERS" idiocracy!! I digress…your actual mileage may vary. Prices subect to change without prior consent or notice, and may vary depending on whether Ford Motors is the only manufacturer making profits at the time Congress needs more money!

    4. Spencer, Detroit MI says:

      So what happens to my old 1999 Chevy S10 that use to get great gas mileage, but after 10 years of wear and tear, I can get only 14-15 miles a gallon on a good day driving downhill. Are you tell me that because they made an adjusted efficiecy standard that my truck doesn't qualify? It states it get 23 mpg's now….I'd love to see that day.

    5. karenc says:

      Cash for Clunkers will end charity car donation since the voucher would far exceed the tax deduction. Charities rely on the proceeds from car donations to help fund their programs. They really need this revenue in these tough economic times.

    6. Pingback: Save The Planet, Kill The Used-Car Industry « Justbkuz

    7. Thomas, Anchorage, A says:

      I'll keep fixing my '98 Tacoma on big tires. Gets 14 mpg or so around town.

      Where's my government bonus for buying a motorcycle to commute?

      Oh, well, 1.5 gallons of premium is a sub-$5 fill-up right now.

    8. Larry- The Republic says:

      If every person who falls for this will fervently refuse to buy a GM or Chrysler, and instead buy a Ford, ObamaMotors Inc. LLC will be forced to accept this fact- that beer cans with electric "hybrid" motors AREN'T what Americans want to transport their precious children,(meaning more than 2 people per car load) around the mean streets of America in!! If we wanted that type of vehicle, the Big 3 would have BUILT those types of vehicles in the first place!! So basically, this "progressive" Congress, with all it's obvious intelligence, feels that imposing regulations that FORCE the manufactureing of 50 mile per gallon cars that look like pregnant rollerskates is GOOD and "responsible" policy. I've said it already- I refuse to be TOLD what type OR size of vehicle I MUST buy to transport my baby girls in. I'm not letting my 7 year old drive a new rollerskate and I'm sure as hell not goin' to put her in the back seat of one with her head 4 inches from the back glass and subect to rear end crashes that will most certainly result in her being crushed and killed!!!!!God, what will it take for those on the Hill to use some common sense and quit jumping at EVERY chance to be THE savior of us all and spending money that's surely to be wasted like every other motion taken by the Liberals. If I NEED some help…I'll dial 911..OK?

    9. Whicket Williams Kin says:

      Now I find out I have to pay for San Fransicko's wireless parking project. When will the insanity end? Please, Never Vote For any incumbent, regardless of Party. If they are holding office, they are guilty of destroying the U.S. economy. The only Elected official that I ever heard preach fiscal responsibility was Ron Paul, and all the kooks said HE was crazy!

    10. Whicket Williams Kin says:

      The eletist who are forcing this down your throat because you voted for them do not subject themselves to it. they ride to the airport in limosines, which you pay for. They have Big heavy cars in their Garages to transport their children in They would never put their baby's in one of these death traps.That is reserved for the sheep out in fly-over country.

    11. Waiting2Trade says:

      Pass this bill to help new car sales and the manufacturing industry (JOBS). Our daughter drives an older SUV (15 mpg) and I would very much like to trade it for a newer more fuel efficient vehicle. But when you go to trade as you well know you don’t get much for your trade with having an older car, making it discouraging to want to buy a new car. Bill H.R.1550 will help balance that out. Giving the new car buyer a $5000 dollar voucher to trade in his older car to buy a new more fuel efficient vehicle. I do know people are WAITING for this to pass and by WAITING it only hurts car sales even more. That’s why its so important to get this passed as soon as possible. It will give me the peace of mind knowing our daughter has something reliable to drive back and forth to college in. It's ok to give billions to bailout various banks, insurance companies, car companies, etc. It's time to help out Mom and Dad. If the Senate has it there way and medals with the House bill I might as well go ahead and trade now because I’m not going to get much more with there version of the bill. It worked in Europe to stimulate the economy it will work here too. Please support H.R.1550 and H.R.1606 The House got it right, now if only the Senate will get it together. The President’s for it and the American people are too. This needs to be done a.s.a.p.

    12. karenc says:

      This bill would put every charity car donation program in the nation out of business since the amount of the voucher would be much greater than the tax deduction. The solution is to simply allow the charity to issue the voucher in lieu of the tax deduction. The charity would then junk the car in accordance with the bill. This way, everyone wins, the car dealer, car maker, car buyer and the charity.

    13. Brian Pasch, New Jer says:

      I found a good Q&A on the bill from questions submitted by consumers: http://www.cashforclunkersfacts.com/bill-faq

    14. karenc says:

      60% the cars that are currently donated to charity will now be eligible for a $3500 or $4500 voucher under the cash for clunkers program. Since the tax deduction for donating a car is only $500 or what the car sells charities won't be able to compete with the program and charitable car donation will end. A better idea is to just change the amount a person can deduct for donating their car back to the book value. That way every car is eligible, the government doesn't have to spend $4 million of our dollars giving away vouchers and trying to administer a program that is way too convoluted!

    15. Pingback: House Spending Perspectives: Disguising Bailouts - AIP Blog - American Issues Project

    16. John Cooper, LA, CA, says:

      The Cars For Clunkers legislation is actually very focused and is only available for a limited four month time frame. It offers participants the opportunity to trade in certain older cars for certain other new ones. Unfortunately, many cars do not qualify for the program and therefore are still ideal for the 'traditional' car donor option. Such non-qualifying cars let people give their cars to non-profit organizations who help people with many different kinds of needs, like supporting youth organizations or our older folks or to help promote the arts and health research.

      Help yourself with the Cash for Clunkers program if you qualify or if you don't qualify or would like to help others, give your "clunker" to charity and take a tax write-off!

      Here are 400 not-for-profit organizations that can always benefit from your 'clunker' or unneeded vehicle. To donate your car, just click on the link to the charity on the web pages below.

      http://www.donatecarusa.com/charities/full_list

      http://www.donatecarusa.com

    17. Carole..Washington S says:

      Everytime Obama announces another scam such as "cash for clunkers" is just another lie. Look at the Mortgage scam he just did. Not one person I know qualifies! No one I have talked qualifies for any of the programs Obama has created except for Unemployment extensions and welfare. Look where he is taking us!!!!! Plus Nancy needs to go to prison for using her New Powers for revenge on the Bush Administration and the CIA. These Politicians need to be fired!

    18. Carole..Washington S says:

      Cash for Clunkers is just another scam.. When are we going to wake up? No one I know qualifies for these wonderful Obama programs. No one is suppose to qualify!

    19. Carole..Washington S says:

      I know no one who qualifies for these programs!

    20. U- R- 2-Conservative says:

      Yep' In June 2008 I did my part to help out Dodge, and traded in my 2002 Ram van. It was a good van with poor gas mileage. Had I waited til July 23,2008 I could've qualified for the clunker program. Another couple of $$$ in my pocket would make things a lot easier but instead I am "SOL". I called senator Dodds office looking for help and shared my dilemma. So far thats all I have to add.

    21. Ohio Resident says:

      Right now you can get $3500 – $4500 for a qualifying car/truck, plus if you buy the right vehicle could get a 4000 – 4500 rebate from the manufacturer. The average saving is 8-10k dollars.

      This is a scam !! I know it sounds good, however prior to the cash for clunkers program you could easily purchased a vehicle for 80-10k below sticker price. My wife and I just purchased a brand new '09 dodge journey about 4 months ago that had an msrp of around 27k dollars, we walked out of the dealership paying 21k, that includes tax, title, docking fee's and all. I had looked for new dodge journeys or for a pickup for several months prior to purchasing and found the same prices, 8-10k dollars off msrp. Dealerships were even advertising it. The way it use to work was…. The manufacturer offered around 4k dollars off in a rebate or incentive program and the dealership could discount the vehicle around 4k dollars, plus you would get around 1k dollars for a owner loyalty program and if you purchased around the end of the month, a dealer would usually dip into his dealerships hold back $$ and you could get another 500-1k off.

      Dealerships stopped discounting, they are just giving the manufacturers rebate + cash fro clunkers money. Now this program is suppose to help the American people ??, how ?? I would say most people who couldn't afford to purchase a new vehicle prior to this, still cant afford it. Are you really getting 3500-4000 for that old vehicle? No, you could have purchased a new vehicle and kept your clunker prior to the cash for clunkers program, and still saved the same amount of money.

      And this part really gets me fired up!! Well all of those old vehicles being traded in under the cash for clunkers are being destroyed as far as I understand, so for those Americans that can not afford a newer vehicle, guess what.. Your slowly being forced to purchase a new vehicle because our brilliant government is going to destroy a large number of still decent used vehicles. How does this help the small used car dealers? How does this help poor working class Americans?

      Does everyone remember what Toyota did not long ago? There was a mass recall on Toyota pickups for a frame rust problem. They recalled practically every late model Toyota pickup, and gave 1.5% Kelly blue book "good" value to the owner. All of they recalled trucks were crushed and sent back to Japan or China for scrap steel, and FYI China has a overwhelming need for steel. Scrap steel is at a basically all time high in value due to China's need for steel. This created a need for Toyota owners to purchase a new Toyota pickup, however to be fair, the truck owners were not required to purchase another Toyota. But as a loyal owner, most probably did buy Toyota because they felt they were being treated good.

      I don't know for sure, but if the cash for clunkers are being destroyed and China who the USA owes a lot of money to needs steel, well it doesn't take much to add 2+2!!

      Wait until the program is over, buy a new car for the same price as being advertised now and keep your old car. Sell it or give it to someone in need.

    22. Miriam Diaz - NY says:

      The cash for clucker's program is a joke! Not only is it taking our stimulous dollars and throwing it in the toilet,(only for us to have to repay for years to come), but it's also putting consumer's who could not afford to buy a new car in the first place…that's why they were driving their clucker, further into debt. A debt that they probably will default on somewhere down the road. With the economy as uncertain as it is, wisdom would tell us that now's the time to save and spend money wisely. It's an endless cycle of government abuse and insanity. These politicians that continue to make bad decisions must be fired. Let's start calling for impeachments and resignations….let's put the fear of God in them and then let's see who they think they work for. We the people, must begin to speak out against what's happening while we still have a voice. Our country can not afford 3 1/2 years of Obamanomics socialism. Weak up America while we still have a republic called America.

    23. Andrew New Jersey says:

      Just to show the ABSURDITY of this program, I would be able to trade in my "14 mpg" dodge dakota r/t for a brand new "baby" hummer H3 which gets an ASTOUNDING 16 mpg average!!! and get the full $4500 "rebate". lmao what a crock of crap.

    24. alfredo ,ottawa says:

      well, obama administration confirmed a plan to bring the end to the cash for clunkers.

    25. Shelbe, california says:

      trust me, many college students would love to have a clunker to commute in. This program results in the destruction of many reuseable cars, which in some cases, are the only things some people can afford, especially in a economy like this.. Cash for Clunkers destroys wealth

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