Cash for Clunkers – Deal? Or, No Deal?

So, here we are.  It only took the Government approximately two weeks to spend $1 billion (that is with a ‘B’, as in “Bucks”) on the “Cash for Clunkers” program.  Congress would have been happy to spend more of your hard-earned money up front, but $1 billion is all that was allocated in the bill.

Now we are looking at round two, and this time Congress is doubling the effort.  Because it worked so gol-darn well, the Government is going to authorize another $2 billion for the “Cash for Clunkers” program.  So ante up folks, Washington is feeling generous, as the 2010 campaigns will be getting under way.  They need a way to redistribute your wealth to make them look good and buy some more votes.

Let me state, for the record, I understand there are a lot of people that, due to the program, have new cars parked in their driveways that would not otherwise be there.  Also, there are that many older cars that no longer plague our roadways.  However, I must ask the question.  Have any of these people thanked you for your contribution to the betterment of their condition?

Yes, America.  You are now owed a great debt of gratitude for assisting in the purchases of all those new cars.  How many?  At $4500 each, $1 billion buys a total, of a little over 222,000 down payments on new cars.  At an average purchase price of approximately $25,000 per new car, the program should account for gross sales of just over $5.5 billion for the auto industry.

Bear in mind, the “Cash for Clunker” program allowed foreign manufacturers in on the deal as well, so Detroit and Government Motors will not glean all the profits; as a matter of fact, they held “true to form” and maintain their dismal market share.

For the moment however, let us assume all the cars purchased, with the assistance of the program, were purchased from Government Motors and Chrysler.  When you consider that most well run corporations operate at a profit of less than 10% of gross sales, and for purposes of recognizing that GM is now leaner and more efficient operating under President Obama, we will allow the full 10%; the program produces a profit of approximately $550 million.

If GM and Chrysler would have been the sole beneficiaries of the program, and all the profit went to repaying the massive bailout of the auto industry, they still owe the Taxpayers approximately 14.5 billion to the tax payers.

However, those $4500.00 payouts merely provide down payments; maybe we have missed the boat on this one.  Maybe the real payback is going to come from the interest earned by the finance companies, which the Government has their meaty little hooks in as well.  After all, according to the numbers used above, the finance companies would have financed some $4.75 billion, which would produce approximately $4.5 – 5 billion of gross revenues, to the finance companies, over the next five to six years.  At 10% profit, 100% of which being paid back to the Taxpayers, that should put another $500 million back in our pockets by the end of 2015, or a little under $100 million per year.  What a deal!

All right, it is time for a reality check.  The fact is, the money supplied to fund the “Cash for Clunkers” program, was first borrowed by the Government, some of which at rates reportedly as high as 30%.  In the end, you and I get to pay the tab for all those new cars, and we never even get to see them, let alone drive them.  Then of course, there is the pesky little fact that we get to pay for them at the government deficit rate, which means each car will cost up to $100,000.00 instead of the $25000.00 purchase price.  Oh, happy day!

Think about it; the Government borrows $1 billion to loan out in $4500 increments, to people who could not otherwise afford it, to purchase approximately 222,000 automobiles, at an average cost of $25,000, and we get to pay back an amount, of up to ten times the original amount borrowed by the government, to satisfy the debt.

I thought President Obama was being hailed, by some on the left, as the smartest President we have ever had.  I might be missing something here, but I do not understand the math on this one.  Maybe the tried and true formulas of mathematics have changed since I went to school; or maybe this is what they were referring to by “New Math”.

The simple truth is, America cannot afford this, or any other give-away programs intended for the sole purpose of buying votes.  “Cash for Clunkers” is not improving the economy or consumer confidence with any sustainable influence, nor will it.  Moreover, as I pointed out, the Taxpayers are going to be saddled with the debt.

In fact, we have yet to experience the unintentional consequences of the “Cash for Clunkers” program.  The program will provide a shortage of used cars and parts, thus driving up the cost of these vehicles.  You know, used cars, the very cars bought and driven by those who cannot afford new cars, but earn too much income to qualify for government assistance, the true middle class, and the actual people who will have to pay the bill in the end.

How many jobs will be lost due to the rising cost of used cars and the lack of parts?  Used car dealers will not be able to sell as many cars, thus they will maintain fewer salespeople.  Parts will be harder to come by, and consequently more expensive, thus causing closures and layoffs at small repair shops who thrive on keeping these cars running at the lowest possible cost.  In addition, how many of the people, assisted by the program, in purchasing new cars, will default on the loans, causing yet another hit on the still shaky financial industry?

No, folks.  It seems to me that Scary Barry and his Congressional Cronies have not thought this one through.  It seems there are too many negatives for the Taxpayers in this “Cash for Clunkers” deal.

Hey!  I got an idea!  How about, we tell Barack Obama Hood and his merry men in Congress to stop looking for ways give away and spend money that we do not have, in an effort to buy our votes?  Maybe instead, they can start looking for ways to begin paying down the national debt.

Mr. President, if you really want to give us something, give us a plan to restore our national financial security.  Give us a plan to secure our borders against invasions of all types, a plan to restore our nation and our military to the “superpower” status we have rightfully earned.  Give us a plan to reduce the size of the Federal Government, a plan to restore the value of our currency returning to a free market and capitalism.

5 Responses to Cash for Clunkers – Deal? Or, No Deal?

  1. M Smith says:

    We could only wish that this farce had taken two weeks to blow through the $1 Billion.

    As it was, it took just a bit over a week.

    And for what?

    Inflated, make-believe auto sales numbers. According to industry analysts these were sales that would have happened anyway, the just happened all at once instead of over the normal buying cycle.

    According to this program had so many flaws it was beyond laughable.

    1. According to CEO Jeremy Anwyl. “The annual summer sell-down typically creates a rush of activity for the industry, and this year that rush came right after automakers cut production in response to the floundering economy. It’s a simple case of supply and demand, bolstered by a reduced level of negotiation on the part of excited clunker traders. Add to this the automakers’ unseasonable reduction in incentives and the message is clear: if you buy a car this summer, you should expect to pay higher prices.” In other words: the people who bought all these cars paid more for them than if they had bought them six weeks ago.

    2.I’m also thinking that this is only a one-time shot here and is in all reality just the fact that the people who took advantage of this farce are ones who were going to be in the market to move from an older vehicle. THey just made the jump now instead of earlier or later. Jessica Caldwell a Senior Analyst at pointed out that: “Of course, this level of activity will not continue, as it reflects the behavior of those anxious and able to participate in the program — and that is a limited set of people.”

    3. Sure Q3 sales figures may look REALLY good right this minute, but I believe that this is nothing more than a momentary bubble caused by these funded kick-backs. Once the industry’s fourth quarter sales figures come out we will see that the market didn’t really gain anything, but in all actuality LOST against last year or even the year before sales figures. When this happens, and the market goes flat, there will be more calls for a second ‘stimulus’.

    Prepare for a perpetual soaking, because once this government sponsored sales bubble is over and auto sales have flat lined there will be screams like you have not heard of “requiring the government to do something”.

    And… consider the fact of how many “deserving people” just were unable to get in on the program because the money ran out the first time. “Why, how can we as a people be so effing heartless as to deny those people the right to a new car?”

    Oh! Here’s another fallacy of this idiocy:

    Despite how some might want to make it look like this was a wildly successful program to “Green the World”, and say that it got rid of a lot of bigger SUVs and light trucks while replacing them with tiny little “environmentally friendly” cars… yeah, weeeel… i guess if you play with the numbers right you can get that impression.
    Again, going back to an INDEPENDENT source: you will see that the Ford F150 (#5) and the Chevrolet Silverado 1500 (#7) did quite well against the contenders.

    You pointed out one of the secondary effects of this fiasco in the fact that the used car market is getting ready to take a hit also…

    i wonder… what about a ‘stimulus’ package there too?

    • Mr. Smith,
      I could not have made the additional points better. Your assessment is spot on, regarding the bubble being created by the “Cash for Clunkers” program, as it is not creating ant kind of sustainable growth.

      Another area, of which I completely negated to mention, is the potentially devastating effect the “Cash for Clunkers” program could have on all the charity programs, such as Kars for Kids, that rely on people donating their old clunkers to finance the charities they operate. How can a charity, that relies on gifts made of the automobiles, compete with the Government, who is paying up to $4500 for these same vehicles? So much for feeding, clothing, and sheltering the children, the aged, and the homeless, I wonder if President Obama has a plan for them? Oh, and I mean other than “End of Life Consultations”.

      As I pointed out, the costs of this program, to the Taxpayers are enormous. The more we analyze it, the costlier it gets. Somebody is going to pay for this massive give away, and I guarantee it will not be the President or his cohorts in Congress.

  2. madrozie says:

    Pretty cool post. I just came by your blog and wanted to say that I have really enjoyed browsing your posts.

    Any way I’ll be subscribing to your feed and I hope you post again soon!

    • Welcome aboard, Madrozie. I’m glad you like it, and appreciate your promise to return. I would also encourage you and the other readers to feel free to comment. I openly welcome appropriate comments, whether in agreement with my viewpoints, or those that offer an opposing point of view. A basic practice of Conservative Patriotism involves the open communication of ideas, thus promoting individual thoughts and freedom. Thanks.

  3. […] And just what was the long-term result of this hoax? In September, GM, Ford and Chrysler each reported drastic declines in sales. It seems that the Ameri… […]

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