The biggest news about the ‘Cash for Clunkers’ program has been, of course, that the plan ran out of cash in one week and needed its funding tripled to $3 billion. Now, some may wonder if it’s really appropriate for tax payers to help pay for car purchases (Murdoc sure wonders, for instance), but I guess I can see that there was at least some justification for the program in the short term.
Long term, however, I wonder if we’re going to see some problems because of this. For example:
Cash for Clunkers is rolling on after President Barack Obama signed a $2 billion extension for the program last week, and new car dealers say buyers are continuing to flock in for the deals. But at the other end of the market, companies and organizations whose business models are built on used vehicles say they’re hurting badly as Americans who might have come to their doors suddenly find themselves better placed to afford a shiny new car.
It’s not just dealers, who say their customers are disappearing. It’s also auto parts businesses, which fear that the cost of used parts could skyrocket as clunkers are destroyed rather than sold for parts. And it’s charities, many of which depend on donated cars to raise cash at auctions.
Though many of the cars traded in during the program aren’t really “clunkers,” they’re all being destroyed. Though used car salesmen may be hurting a bit right now, I suspect that used car buyers are going to feel the effects of this program for years to come, particularly those who can only afford cheaper and older cars.
Some of the parts on the clunkers can be sold, but nothing from the engine or the drive train. Generally, these are the most important and most expensive parts.
Also, I wonder if we’ll be seeing an uptick in defaulted auto loans as people who took advantage of the program find that they’ve bitten off more new-car-payment than they can chew. Even if everyone manages to pay their loan, it seems likely to me that many new cars bought under the program were bought by those who would have spent less otherwise.
So we’re using taxpayer money to bail out car owners who have previously chosen to drive cars now deemed “clunkers,” and those of us who drive cars with better mileage are funding the program.
While some folks got a good deal on a car they would have bought anyway, I suspect that a lot of people, particularly those near the lower end of the income scale, are going to suffer for this in the end. We’ll see.