• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • Cash for Clunkers: Robbing Peter to Pay Paul

    In this case Paul is the auto industry, as if they haven’t gotten enough help from American taxpayers, and Peter is the retail industry and, of course, the American taxpayer:

    “Retail sales outside of autos turned in a disappointing performance in July, underscoring concerns about the timing and durability of a recovery from the worst recession since World War II.The Commerce Department said Thursday that retail sales fell 0.1 percent last month. Economists had expected a gain of 0.7 percent.

    While autos, helped by the start of the Cash for Clunkers program, showed a 2.4 percent jump — the biggest in six months — there was widespread weakness elsewhere. Gasoline stations, department stores, electronics outlets and furniture stores all reported declines.

    The July dip was the first setback following two months of modest sales gains. Excluding autos, sales fell 0.6 percent, worse than the 0.1 percent rise economists had forecast.”

    We shouldn’t be too surprised this happened. When the government makes decisions like this, we face trade offs and unintended consequences. Especially during a recession, people who buy new cars will (hopefully) be mindful of their budgets and make spending cuts elsewhere (if necessary) to afford new vehicle payments.

    Germany experienced similar circumstances where a €1.5bn ($2.1 billion) program blossomed into something that could cost three times as much. And while it looks to have the effect of stimulating the economy, it may not have as big an impact on stimulating Germany’s economy as expected. It may have 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.”

    Although coined the first successful stimulus, the program is shifting spending rather than increasing it. And it’s sucking the money out of charities that rely on used car donations:

    “The damage has not been insignificant. According to the Associated Press, a Texas-based charity estimates that the cash for clunkers program has already cost it $75,000 in missed vehicle donations. Unfortunately, instead of being sold for charity funds or turned over to needy families, formerly donation-worthy cars will be sent to the crusher with seized engines, per the program’s stringent guidelines.”

    Because of the government’s market-distorting effort, we could be at a point in the future where supply significantly outpaces demand:

    “It’s a delicate balancing act for automakers. Build too few cars and dealers are stuck turning away customers. Build too many, and they have to slash prices to get rid of inventory — the same situation many in the industry were stuck with earlier this year.”

    It’s like that episode of Saved by the Bell when the gang produces “buddy bands” and they become a hot commodity until everyone sees Mr. Belding wearing one. On point, in walks Slater with boxes of 500 more buddy bands. With any luck, automakers will use a little more caution than fictional high school students when expanding the production as the initial rush for the cash part of the program is over:

    Posted in Economics [slideshow_deploy]

    20 Responses to Cash for Clunkers: Robbing Peter to Pay Paul

    1. Albert Campbellsvill says:

      I sure wish they would stimulate my idustry,we have rolling layoffs and have had 4 2 week shutdowns already this year.Ive grossed $6400 since march today i got a two week paycheck for $114,another layoff end of august.By the way we make things that sell retail.

    2. Kurt Z. in St. Louis says:

      The joke that is the "Cash for Clunkers" program is: ONE-Our tax dollars going to foreign auto companies. i.e. Toyota, Nissan, Kia, Mitsubishi, etc. TWO-Being used for autos that are NOT all fuel efficient or"green" THREE-Killing the used car industry by preventing people that can't afford NEW cars from getting a quality USED car. FOUR-Not stimulating more spending but just a shift in spending. Thus hurting other retail industries. Show the records Mr. President! Reveal the details on what cars have been bought and what has been destroyed! Remember the TRANSPARENCY thing you promised! I mean LIED about…

    3. Mark T. Oklahoma USA says:

      What is that saying "A Butterfly flaps its wings in china and a hurricane hits…" something like that. Well it is like this If I don't pay my electric bill so I can eat then I will eat in the Dark… This is crazy

    4. Larry, New Jersey says:

      Another example of Obama funneling money to the unions who now have a major ownership of GM.

      Why don't we just send a personal check to each union member and save the costs of tax collection, "management", etc.

    5. Jack Rosenblatt Char says:

      Who buys US Bonds—————China

      Who Buys Scrap Steel———– China

      Who sells the items back to the US.—China

      China told the US we need thousands of scrap cars or we will stop buying the bonds (Sell what they have)…..US Said how many cars do you want. It is not about gas, it is the deal with China. Steel has gone up 11% in the last 2 weeks.

      Check it out.

    6. Greg, Vail, AZ says:

      dems and libs love programs like this. Especially the libs. They are only about 20% of the population, but they like seeing the other 80% support the have nots. Health care is a perfect example the many are made to support the few. I for one DO NOT want to pay for anyone else's bills!! I struggle to pay my own as it is!!

    7. Linda Carlsbad, CA says:

      Government get out of our way and let the free market do what needs to be done to get out of the recession. Government stop being green, and giving money to destroy cars and producing toxic air!We don't want your hand outs,pay attention to your war,and keeping America safe. It just amazes me, they cut our defense money and give billions to cash for clunkers, how nuts are the people running this country?

    8. Gary- General Delive says:

      This is the equivelent of the Mau Mau uprising staged by Obama's grandfather, only instead of a machete, Obama is using the economy.

    9. Jerry from Chicago says:

      Any system that operates under the principal that it's ok to rob Peter to pay Paul, can always count on the support of Paul.

      More than likely, you and I and the townhall protesters can all be fairly called "Peter".

      Mr. Obama fancies himself a modern-day Robin Hood, stealing from the rich to give to the poor.

      I have written to Mr. Obama explaining that "Robin Hood" is a child's fairy tale. In real life, anyone who steals from the rich, or anyone else, is a thief, not a hero.

    10. dennis florida says:

      to linda….. who in their right mind buy a junk car for $4500, only the obama administration. and with our money………..it just keep's better and better.

    11. Lynn B. DeSpain says:

      Not only are you paying yourself with your own money, you're signing over your computer and all of its files to the Federal Government, once you agree to the "Privacy" Staement, to use as 'They see fit.

    12. Al Jacksonville Fl. says:

      Trashed houses, Bankrupt Companies, Junk cars, is there a pattern emerging? If Congress had not got into the housing market in the first place.(read Fannie May,Freddy Mac)and then told banks that they needed to relax their lending rules. The housing problem would have never happened. Where is it written that reguardless of your earning potential or past credit history that You have a right to own a home. Who said thad bad business practices should be forgiven. Why should "We the People" buy junk cars, bail out companies etc. 'Cause CONGRESS and our PRESIDENT say so??? And now it's on to Health Care. The smell of Revolt is in the air. Someone Wake Up!!!Kick the Bums out and start fresh.

    13. Jane texas says:

      My husband & I both cry to hear & watch how the fabric of our country is almost gone..in just a few months. Are hearts are broken but our spirits still believe in our America. As long as we have breath we will always believe in our Beautiful Country. Having been raised by 2 loving parents who believe in the Dream,believe in prayer and respect for our country it is a terrible thing to watch.

      I believe that Obama wasn't so lucky..he was in a hate America church for over 20 years,surround by people that had everything and were not thankful for anything. He had the same choices you & I had and he decided to be taught by anti American pastor for over 20 years. We must continue to believe that we are the greatest country in the world..and we are proud Americans that have fought for our country and other countries and this will never be taken away from us,we must continue to tell our children our stories. Even if this Goverment rewrites the history books our stories should never be forgotten. God Bless American we must continue to pray as if our lives depend on it. Thank you for the opportunity to write what I feel..freedom of the written word..

    14. TonyfromOz Coomera Q says:

      Wonderful wonderful plan that cash for clunkers turned out to be.

      See the Government's list at this link.

      http://money.cnn.com/2009/08/04/autos/cash_for_cl

      Just wonderful. 9 of the top 10 cars are all those small ones.

      The plan is a great success.

      Really.

      What was done was to include the vehicles in their different model availabilities, like F150 FWD diesel, and F150 2WD petrol, and F150 Dual Cab, and F150 long wheel base as separate models.

      So when the actual numbers came in, the top seller was the Ford Escape SUV with 2 other SUV's and two full sized trucks the F150 and the Chev Silverado all in the top ten.

      Only one of the actual top five was a small fuel sipper, the Ford Focus.

      Here's the link to the actual sales collected from the dealers.

      http://money.cnn.com/2009/08/07/autos/cash_for_cl

      It would seem all is not as we are being shown. Now surely the Government wouldn't fudge the figures like this, would they?

    15. Lee-White Tanks AZ says:

      The "unintended consequences" of this governmental slight of hand/fiasco is not hard to see.

      The easiest to see is that for the most part these people who are buying these cars were not in the market to buy a new car at this time. This program created an "artificial" bump in demand. these are the people who would have been replacing these ""clunkers" a year or more down the road.

      Guess what, reduced future demand!

      This "one time opportunity" will also result in some number of these buyers being quickly in over their head financially. Sound Familiar??

      Guess what, another "bailout" program!

      PC is Thought Control

      LEE

    16. Dalelinda, Fremont, says:

      I am concerned that this clunker program which so many people seem so happy about may have some hidden concerns. One of these concerns is that dealership computer data belongs to the gov't when the dealership agrees with this program. That is sickening to me: ALL OF THE PRIVATE INFORMATION THAT THEY CAN HAVE GLEEFUL FUN PUTTING INTO THEIR DATA COLLECTION FOR WHO-KNOW-WHAT PURPOSE. This is not what government is for.

    17. Marshall Hill MI. says:

      Mr. Rosenblatt is correct and I think the Gov. will now Stiff the Dealers what they are due!

      This is a Crew that cannot do anything right

      unless they are held by the hand!

    18. Pingback: Get ‘Em While They Last: Cash for Clunkers Program to End - RENEWtv: Renewing America. One Episode at a Time. Hosted by Billy Hallowell.

    19. Pingback: Get ‘Em While They Last: Cash for Clunkers Program to End | Conservative Principles Now

    20. Jeff,Wauconda IL says:

      3 $billion ? For what? 4,500 per car…? that comes out to

      2 million cars got traded in?.Why does it cost 3billion for US!

      So each car traded in cost US tax payers=1.5 million ?

      (I wish I had a miliion dollar car !)

      Wait for the defaulted loans to come in from people who cant afford the "new car" payments.This is worse than the housing lending crisis and will trickle back to more taxes.

      Do the MATH ! THe deficit is over 9 trillion and climbing

      because the government CANT stop spending or cut programs.THEY ARE GOING TO RAISE TAXES to "fix" the problem,this is screwed up !!! Talk about it to everyone!!!

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.

    ×