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Author Topic: Residual Effects of Cash for Clunkers  (Read 877 times)
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Silk_Hope
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« on: December 10, 2011, 10:51:54 AM »

Cash for Clunkers took place 3 years ago, many good cars were traded and destroyed which adversely affected the used car, used auto parts and new auto parts market. Yes, new vehicles were sold that energized the auto manufacturers however it has been argued that all CFC did was to speed up the process for those considering a new car because after CFC ended sales dropped to extremely low levels once again. The argument was also that it was a green program to get gas guzzlers off of the road for a more economical vehicle. Did this do this, yes however statistics show that most older vehicles are driven less miles than new vehicles so the fuel consumption is about the same. Also, the amount of emissions that was cut is minimal because the 690,000 cars and trucks destroyed are a small fraction of the US fleet. One irony is the Greenies that hate Excursions and Hummers did not get a chance to destroy these vehicles because they are considered heavy duty trucks and were not eligible for the program.

"Beyond the economic impact, there’s also an environmental component to the program. The Department of Transportation says about 690,000 cars have been swapped for more fuel-efficient models as a result of the CARS program. According to a study by Christopher Knittel of the Center for the Study of Energy Markets, that would reduce annual gas consumption in the United States by roughly 186 million gallons per year, lowering emissions of carbon dioxide, the most important element in the greenhouse gases that are implicated in global warming, by about 1.9 million tons a year.

While that may sound like a lot, consider that the United States consumes about 378 million gallons of gas a day, and released about 6.4 billion tons of greenhouse gases into the air last year. Of course, cleaner-running cars also spew fewer air pollutants such as carbon monoxide, nitrogen oxide, volatile organic compounds, benzene, formaldehyde, particulate matter, and other toxic materials that contribute to smog and respiratory disease." http://www.cbsnews.com/8301-505123_162-51333886/cash-for-clunkers-did-it-work/



Now, 3 years later many of these new cars are now approaching the 100,000 mile mark, many people still owing money on the cars. The repossession rate for these cars is higher than the average and many people have experienced buyers remorse.

http://www.lemonlawspecialists.com/blog/?p=818

http://content.usatoday.com/communities/driveon/post/2010/01/many-cash-for-clunker-buyers-have-higher-repo-late-payment-rates/1

As for buyers' remorse, almost 1 in 5 clunkers program participants
who took part in a survey this month said they regret buying a new vehicle under the program. Among those who didn't use the program, the regret rate was slightly more than 1 in 20.

As a result, perhaps it's no surprise that more subprime customers who took part in the program tend to be late with payments than those who did not. Many had expected the economy to rebound by now.

"Faced with a new monthly payment of $250 to $350 per month, many of the (clunkers program) users admit they didn't think past the new car smell," CNW says in its January newsletter. "Most, however, anticipated the economy improving substantially between last July and today and felt that improvement would give them the financial boost necessary to at least offset some of the additional monthly payment."

Was CFC worth the cost to the American taxpayer? It has ben calculated the cost for each clunker traded was not $4500 but rather $24,000:

http://www.edmunds.com/about/press/cash-for-clunkers-results-finally-in-taxpayers-paid-24000-per-vehicle-sold-reports-edmundscom.html?articleid=159446&

To conduct the analysis, the Edmunds.com team of PhDs and statisticians examined the sales trend for luxury vehicles and others not included in Cash for Clunkers, and applied the historic relationship of those vehicles to total SAAR to make informed estimates. These estimates were independently verified through careful examination of sales patterns reflected by transaction data. Once the numbers were determined, Edmunds.com's analysts divided three billion dollars by 125,000 vehicles to arrive at the average $24,000 per vehicle.

Another immediate effect was a decrease in the used car and parts market that hurt those unable to qualify or afford a new car. The used vehicle market prices sky rocketed as the cars many lower income people would purchase dried up.

Used auto parts, especially engines, became unavailable for those wanting to repair their current vehicle and the cost for the replacement engines jumped tremendously. The used parts market could not absorb the amount of junked vehicles coming into their yards and many parts were not recycled as they would have been during the normal auto end of life process.

Also, people that did not own vehicles that qualified under the program felt "punished" because they could not trade in their 15 year old Honda Civic and get $4500 for it.

Looking back and researching the whole program it can be clearly seen that the program was a failure in many ways, hurting new buyers with the allure of a new car, those wanting a used car at a reasonable price, the non qualifying buyer with an older fuel efficient car, the used auto parts industry, a minimal reduction in emissions and the cost per vehicle to the US taxpayer.
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peacefulcapitalist
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« Reply #1 on: December 10, 2011, 10:16:54 PM »

The merits of cash for clunkers is debatable but there are fallacies in this post. One that stands out is the assertion that new cars bought 3 years ago are now approaching 100,000 miles. A few may be, but someone who drives 33,000 miles a year is way out there on the bell curve.

Also it's debatable that cash for clunkers is the cause of the current high used car prices. The Japanese earthquake and tsunami, along with floods in Thailand where many of the  car makers' component suppliers are located, have drastically cut into new car manufacturing capacity and made supplies of new cars constrained, which also increases used car prices.
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Silk_Hope
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« Reply #2 on: December 10, 2011, 11:13:01 PM »

I said approaching 100,000 miles, a true statement because many are at least at 75,000 miles, there is no true way to tell however many people drive 25,000 miles a year, the average is 15,000 miles a year.

The articles came out prior to the Japanese earthquakes however many manufacturers were not affected by the earthquakes and did not lose manufacturing capabilities.
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Silk_Hope
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« Reply #3 on: January 10, 2012, 09:25:33 AM »

This is what should have happened to the Cash for Clunkers cars:

http://www.digtriad.com/news/local/article/207936/57/Wheels4Hope-Helps-Families-In-Need

Greensboro, NC -- Call it a late Christmas gift perhaps. Thanks to "Wheels4Hope" a struggling family has a car of their own, for a fraction of the price.

Wheels4Hope sells cars to qualified recipients who are referred by partner agencies. Program cars are vehicles that are in sound mechanical condition and are valued in the $2,000-4,000 range. Recipients are required to pay $500 for their car and be responsible for title and transfer fees. In the process of providing affordable cars, Wheels4Hope also stands behind each program car with a 6-month warranty.

All the cars they give away are donated. The donations are a tax write-off as Wheels4Hope is a 501 3c charity. If you'd like to donate a car to the program, call (855) 832-1941 or click here.

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« Reply #4 on: January 10, 2012, 11:07:04 AM »

Several years ago, we donated one of ours to the Kidney Foundation.
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« Reply #5 on: January 10, 2012, 01:47:08 PM »

I have a friend that is the 5th largest independent dealer in NC, and I will tell you that his thoughts on CFC are in line with what Silk Hope mentions.

1.  There was a large shortage of cars in the 2K-5K range.  In fact, the market is still trying to catch up.

2.  The shortage has several impacts on the market.

2a.  The cars in this market that were available, were going for 7-10K.

2b.  The customers that rely on a 3K car price are having trouble paying 7K.  Not only is the initial price higher than the individual might spend, the payments also increased due to higher interest rates.  Finance companies that were willing to loan Joe 3K at 5%, now wanted 8-9% for 7K due to an increased chance of default.

3.  Since these cars were destroyed, it also drove up prices in the used part business.

3a.  It not cost more for Joe to repair his car.

3b.  It also cost more for the dealer to fix a car, which drove up the sale price on the vehicle.
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« Reply #6 on: January 13, 2012, 10:57:39 AM »

I don't think the designers of Cash For Clunkers had the secondary effects in mind. They had a serious environmental component behind the $ incentives- namely, a requirement that the junked cars have liquid glass poured into the engine block- rendering said block useless forever.

On the used parts market, an intact cast iron engine block is worth it's weight in gold. It is the component that can bring a dead car back to life, or have a new one built around. NASCAR people like old school bus engines, for instance. They generally don't have a lot of stress wear and can be readily bored out to higher displacement.

The point of that program was to force more people into newer and higher MPG cars- and not allow for anybody to do otherwise with the castoffs. I doubt they gave a rat's patootie what happened to the car marketplace afterwards.
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