We’ve all seen the news of the “Cash for Clunkers” program over the past few days. In less than one week, $1 BILLION dollars of taxpayer money was burned through, the CARS program website crashed due to high demand, dealers were left wondering if the commitments they made would be honored, and consumers were left confused and angry.
Politicians in Washington, like our own Bruce Braley (a strong proponent of this social engineering) were left scrambling. The House, prior to taking a month recess, voted an additional $2 BILLION to the program. The Senate is expected to vote on this matter as soon as today.
An estimated 250,000 vehicles have been purchased in a week, a staggering amount of steel and rubber hitting the road. Ford’s sales jumped 2% over the same period last year, due in large part to the government’s program. This was the first increase from any U.S.-based automaker since November 2007. General Motors, Toyota, Chrysler, Honda and Nissan all reported drops in sales compared to a year ago, but sales rose sharply from June.
While all of that seems to be fabulous news on its face, let me opine as to why this program is one of the biggest disasters since the bailout of Freddie Mac and Fannie Mae.
Previous Bailouts: First, the US government has already poured BILLIONS of dollars into attempting to revive the domestic auto industry, most notably with Chrysler and General Motors. The “too big to fail” argument was used for Chrysler and GM…despite years of sales decline, product lines that favored SUVs over fuel efficient cars, and two Boards of Directors who were largely checked out of the management process. Throwing $1 to $3 billion MORE of our money at them, at this time, adds insult to injury.
Altering the Supply & Demand Model: The Obama Administration is effectively running two companies, GM and Chrysler. It has changed leadership of the companies, ordered plants to shut down, and forced bondholders and financial backers to accept pennies on the dollar for their investments. It rushed both companies through the bankruptcy process and forced both to change their product lines. Not satisfied with perverting the private industry supply model alone, it has now perverted the demand side as well with the Cash for Clunkers program. And again, it has used our money to do it.
One of the stipulations of the Cash for Clunkers program is that the cars that are traded in must be scrapped. In other words, vehicles that have years on their useful life span are sent to scrap metal. Rather than wait two to three more years to “use up” that life cycle, owners are now scrapping them for new vehicles. We are effectively truncating the normal demand schedule. In other words, in two to three years, the demand for new vehicles that would have otherwise been there will not be there. We’ve moved people’s buying decisions up, artificially pushing demand now, only to hit an artificially constructed pothole in two to three years. What will happen then? Will we undertake another bailout due to sagging sales and unemployment within the auto industry?
Do These Buyers Need Help? Finally, the people who are buying the new cars are not low income, unemployed, recently laid off people…they are people who can afford to rush out and take on more debt and get access to credit. In other words, those who our government should be least worried about helping in times of financial crisis.
In my bailout weariness, I’ve noted some other interesting things:
The Obama campaign blasted the Bush Administration for creating large deficits and an “unsustainable amount of long term debt.” Since taking office, it has ballooned the federal debt to the highest level in our country’s history.
The Obama campaign also lashed out at the culture of spending that fueled the housing boom, the financial crisis, and the mortgage meltdown. Since taking office, they’ve poured billions into fueling incentives for spending. Buy a new home, get $8,000 back from the government. Buy a new car, get $4,500 back from the government. Aren’t these artificial economic incentives to spend more and buy more exactly what got us to the brink of economic disaster?
And now, we’re supposed to believe all of the experts that tell us the US Government can handle taking over 20% of our economy, and run the health care delivery system more efficiently and effectively. The government can’t even run an efficient website for a $1 billion program…but they want me to believe they can take on a trillion dollar program and make sure I get prompt medical care?
The Cash for Clunkers program is aptly named. Unfortunately, it’s a name I would export to virtually every other social engineering program I’ve seen come out of this Administration.
Our Cash. Their Clunkers.
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