1)The red line represents Google searches for “NHTSA,” the blue line represents searches for “Clunker.” And we wonder why they weren’t ready.
2)The CARS program could cost up to $45,354 per vehicle. To get to that number Seeking Alpha starts with the Edmunds stat that 200,000 old cars are traded in every three months. Since CARS will grease the wheels for between 222,000 and 286,000 deals, the marginal increase is only in the 22k-86k sales range. At a cost of one billion dollars. Bottom line, the program should cost taxpayers a minimum of $11,628 per vehicle over the average. Add the fact that these marginal sales increases are likely pull-forwards, and C4C looks less and less like the “wild success” being attributed to it.
3)The German’s had to cap their C4C scheme at €5b. They thought €1.5b would do the trick. And even after the aproximately $7b was spent, the auto industry was “waiting on the bonus like a drug addict waits for the next shot,” according to one German politician.
4)Confirming C4C’s arrival as a genuine cultural phenomenon, there’s a new drink called “The Clunker.” Lemondrop.com accompanies the recipe with a rundown on how to discuss the CARS program at cocktail parties. Our advice is to just make the drink and read TTAC.
1 ounce Scotch
1 ounce Brandy
1/2 ounce Drambuie
1/2 ounce Triple Sec
1/2 ounce Lemon juice
Shake all ingredients together. Garnish with a twist of lemon
5)Someday TTAC will cover something besides Cash For Clunkers.
Seeking Alpha is parading guess work as analysis. I read Avery’s piece, and there is no rigor to it. He is trying to guess at how many incremental sales are happening due to C4C, then spreads the cost of the program out over only those he guesses are incremental sales. Basically, he is pulling numbers out of a dark place in support of his political views. Meanwhile, he doesn’t even bother to use the term “incremental”.
The funny thing is, the C4C programs end up recapturing most, if not all, of the subsidy thanks to sales taxes on the new vehicles sold and income taxes paid at every level of the supply chain from dealership all the way back to the raw materials suppliers. Every time money changes hands, the tax man generally gets a piece of the action.
#5 is certainly something to look forward to!
Keep the coverage (and the drink recipes) coming!
Bottom line, the program should cost taxpayers a minimum of $11,628 per vehicle over the average.
I wonder how much will be recovered in state and local sales taxes?
So let’s say they up it to $3B and approx. 700K folks flip into a new car…
Let’s say the average amount financed on the new car is $15K, then the feds just helped create 700K x 15K or $10.5 Billion in new debt at let’s say 8% over 48 months.
Well friends that sucks $266,700,000 out of the US consumer EVERY MONTH FOR THE NEXT FOUR YEARS.
Probably more like $300M A MONTH when you factor in the increased insurance bill for the new ride.
I wonder where that cash comes from? Target and the Olive Garden better hope a that bunch of new cars don’t show up in their parking lot in the next couple weeks.
@lw: What kind of masochist pays 8% on a new car? That’s a less-than-good rate on a usedcar, unless somehow you finance for, say, 120 months, then you get what you deserve.
@paul_y
Bankrate.com is advertising 7.27% on a 48 month new car loan. I rounded up figuring that they advertise low and then work you up a bit once they run your credit and such.
“I wonder where that cash comes from?”
Economically, money is about circulation. When the money stops changing hands, the real activity stops as well. Much more “cash” is available to change hands in a busy economy than in a stagnant economy.
As long as borrowers are not borrowing more money than their personal cash flow easily supports the repayment of, debt isn’t in and of itself evil.
Yeah, a vast majority of these have to be 60-month deals, and of them have year-end/model year APRs as low as 2.9% down to 0%! Now how many of the sales will fall into higher rates because of no down payment or shady/hasty agreements, say the 7-11% range remains to be seen. Can someone please explain when buying a car got so freaking complex?
$45000 per vehicle…..hmmmm…..get real. That is BS. why bother even going there?
Economically, money is about circulation. When the money stops changing hands, the real activity stops as well.
Fundamentally it goes further. A economy is about work/stuff happening. It’s implied that the circulation of money would cause this, though empirically we know the correlation is strong.
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Anyone worried about “debt” should think about how houses ever get bought (well, before the latest bubble). Most people don’t fully pay off the full value of the home they live in, yet the system works well to produce jobs, houses, communities, etc. As long as the money gets spent on something worthwhile (like preventing an economic implosion), it’s money well spent.
The majority of the people buying these cars were not in the near term car market. They either drove their old car because they are frugal, or had an extra car lying around. We have had several people use 2 vehicles, 1 clunker and 1 regular trade. Not too many of these sales are being pulled forward from the rest of 2009. As for the lost sales elsewhere as a result of a new car payment, many of these people are paying cash (they saved it by having no car payment all these years) or are buying such a cheap car that it won’t really affect their budget too much.
At my Hyundai store, the typical clunker buyer is buying an Elantra, which they are getting for $12k or less OTD after all the discounts. Put a little money down and the payment is in the low $200s per month over 60 months. Hardly a bank breaker.
I bet many of these people will pay their loans off early.
I’m seeing the same thing as dwford. A lot of these people would never have been in the market had they not suddenly been offered double, triple, or quadruple what their clunker was worth. Of the ones who come in because they misunderstood the program (think they get the voucher plus the trade in amount, think they can buy an old junker for $400 at a junkyard and trade that for $4500, etc) most walk away after having the truth explained. Yes, some people are still buying even after finding out they can’t get the voucher, and some were in the market already, but in my experience, the majority weren’t. A lot of customers are also buying the new car in cash, or financing just a small amount of it to take advantage of manufacturer rebates that require financing through the automakers financial division. Don’t forget that peer pressure is also a big motivator for purchases, when the neighbors come home with a shiny new car, a lot of people are going to be finding themselves in the market as well, with or without the C4C vouchers.
@lw – $10.5 billion of new debt is a good thing, people have to start spending money to get the economy turned around. In addition to helping the dealerships and the auto manufacturers the interest on those loans helps the banks recover, and the new full coverage insurance policies help the insurance industry. Having a new dependable car to show off will also encourage people to travel and go out, helping everything from restaurants and hotels to car washes and auto parts/accessories stores as people spend money to personalize their new posession. The extra money the banks are making will help them relax their lending rules, helping to ease out of the credit crunch, and the extra money being made by all who work in the auto industry will help them pay down their own debts faster.
@paul_y – The best (non manufacturer subsidized) rates I see for new car purchases are around 5% with excellent credit on a 60 month loan. Depending on their credit situation customers can get anywhere from that to 18% and above, with those high secondary bank rates often also including a bank fee for the privilege of offering the customer the high rate in the first place. If you have been a good consumer and paid off your debts on time, not declared bankruptcy, not gone into foreclosure, and not had a reposession recently however, you won’t have to worry about rates like that.
@ NulloModo
So more debt will make us wealthy? I had no idea…
If I buy a million dollar home with no money down, am I a millionaire?
I wonder how much will be recovered in state and local sales taxes?
None. It can be argued that these are sales that wouldn’t have happened otherwise, but the truth is that all of these people would have eventually bought a car sooner or later.
So, as has been pointed out in other contexts in the posts above, this may generate cash into the tax coffers sooner (improving cash flow), but as ever, buying sales (or tax dollars) now leaves a nasty hangover later.
One of the reasons that GM’s sales stayed down during the economic boom was that during the post 9/11 down economy they bought sales. Well, given that they have a limited market base of buyers, a lot of people bought cars cheap during the down turn and didn’t need to buy a car during the good economy. Cars now last 6 -7 years before replacement. So GM bought cash flow during bad times but left themselves with no buyers during the good. The same thing will happen here.
None. It can be argued that these are sales that wouldn’t have happened otherwise, but the truth is that all of these people would have eventually bought a car sooner or later.
I thought that at first, too, but all the dealership workers on here have posted that the people coming in are traditional used car buyers, not new car buyers. Which means without the program a good chunk of them would have bought used cars, with a lower sales tax revenue.
Yowza. I think after three or four of those “Clunkers” I might cough, sputter and worse, until someone gives me up for dead and sends me to the crusher!
1 ounce Scotch
1 ounce Brandy
1/2 ounce Drambuie
1/2 ounce Triple Sec
1/2 ounce Lemon juice
Y’left out the sodium silicate solution.
(Oh, and “Germans” should not have an apostrophe.)
Tey are not preventing an economic implosion they are building a huge bubble of government spending.
I know these folks are terrible with numbers, but at least try to learn how to use fractions. What percentile of the giant crater left by just the market implosion is filled by a 700billion stimulus (half of which is worthless tax cuts) do you think?
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I figure that Fiatsco is losing thousands on every sale like that and the taxpayer is picking up the difference.
That’s only true in hillbilly math. Right now they have stock on the ground that is growing increasingly worthless. The real difference is in getting some money for it now, or even less money in the future.
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but the truth is that all of these people would have eventually bought a car sooner or later.
As pointed out, they very well may buy used, or the emphasis on “later”. Timing matters. Waiting for someone to buy a car when the economy recovers is like waiting til you’re married to be more palatable to women.
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So more debt will make us wealthy? I had no idea…
If I buy a million dollar home with no money down, am I a millionaire?
If you can afford the payments, the million dollar home and all the work necessary to create it will now exist whereas it may never happen if said person had to save up all one million before buying (and all those involved in the economics of the house would sitting on their ass like those “lazy” third world brownies).
That’s the “economy” in a nutshell. Why do you think the US is a “rich” country? Because of the kind of genius displayed here?
If they are moving as many cars as it seems, C4C just proves to me that new cars are overpriced by about $4,000.
” … C4C just proves to me that new cars are overpriced by about $4,000.”
It seems that way, but you are incorrect. Massive manufacturer rebates were not getting the job of demand creation going because most people have become immune to rebates as a buying motivator.
But, getting the hulking piece of crap out of the driveway in return for $4500 is a much more powerful motivator than just reducing the price of new vehicles by $4500 would be. The widely publicized short-term nature of the program also motivated a large number of people to get out of wait and see mode. If C4C becomes a long term government program, the stimulative advantage will wear out just like the manufacturer’s rebate game burned out. To create buyer interest you need something new, novel and compelling. Use it too much and the effect wears off.
“If I buy a million dollar home with no money down, am I a millionaire?”
No, but if you have a new million dollar home built it will create a great deal of real work. Borrowing the money does in fact create the money. That is how fractional reserve banking works. The important thing is to not be lending money to people unless they have an extremely high probability of being able to repay it in a timely manner. Debt is neither good nor evil in and of itself. The relative goodness or badness of debt all depends upon the facts and circumstances around it.
Like I said, for most of these people, any debt will end up being short term.
As for rebates, consumers expect them, and will wait until they appear in most cases before buying – hence the rebates at launch for the 2010 Taurus. Yes, the rebates are factored into the price, so you could say that the prices are too high to begin with. But remember what happened a few years ago when GM cut prices across the board to get MSRP closer to the actual transaction price, customers didn’t buy it and rebates crept back up and are huge again.
I can’t think of another retailer that has made the no sale business plan – “everyday low price” other than Wal-Mart. And they still put stuff on clearance at end of season.
But, getting the hulking piece of crap out of the driveway in return for $4500 is a much more powerful motivator than just reducing the price of new vehicles by $4500 would be.
True dat! Let’s say your thinking of getting a new ride, your old ride (a.k.a clunker) is perfectly fine but clearly showing its age. So you know the dealer is going to low ball your trade in, the KBB value is around $2,500 and on the open market your might get $3K if you spent the entire weekend buffing out every swirl in the paint. However, with the C4C program your guaranteed $4,500 for your POS, no questions asked, no driving around for months with a 4$ALE on the back window. Drive up to the showroom and BOOM $4,500 cash! Bald tires? -who cares, leaking oil? no biggie -A/C dead? well so’s the whole car… heck you don’t even have to shake out the floor mats. If you own it and you were able to drive it to the dealer it qualifies (as long as mpg is pathetic enough of course).
Having a set price for your trade eliminates HALF of the 4 square battle, which (as we all know) is the main reason most people HATE the whole car buying experience.
Ok, tell me this. When is someone going to wake up and realize that a huge percentage of the folks taking advantage of this program cannot afford the new car, don’t qualify for a new car, and the financing is being dealt with just like the under-qualified mortgages that got us in the mess we are now in. What is the cost of all the repossessions in 12-18 months, and who is going to pay for THAT bailout? Wake up America, this is a very, very bad program for our economy.