News Who Benefits from the CARS Program?

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The discussion centers around the CARS program, also known as "Cash for Clunkers," which aims to stimulate the economy by incentivizing consumers to trade in older, less fuel-efficient vehicles for newer, more efficient models. Participants express mixed feelings about the program's effectiveness and its implications. Some argue it primarily benefits the auto industry and raises the prices of used cars, making them less accessible to lower-income individuals. Others highlight its success in boosting auto sales, with reports of dealers experiencing significant increases in transactions. The program is said to have led to a notable improvement in the average fuel economy of traded vehicles, but concerns about its long-term financial sustainability and potential for increased consumer debt are raised. The discussion also touches on the environmental impact, with some suggesting that the program may inadvertently encourage more driving due to the appeal of new vehicles. Overall, while the program has been credited with stimulating economic activity, its broader implications for consumers and the environment remain contentious.
  • #101
jimmysnyder said:
You asked for a reference and you got a reference.
Yes, though we don't know what bleedblue based his claim upon.
What is the Edmunds list?
As posted above. Edmunds tallied up the sales of clunker replacements, reported here by CNN Money
http://money.cnn.com/2009/08/07/autos/cash_for_clunkers_sales/index.htm"
The top 10 rankings they show come from Edmunds. Three days prior CNN Money posted the DOT list:
http://money.cnn.com/2009/08/04/autos/cash_for_clunkers_cars/index.htm?postversion=2009080515"

Are you referring to the autobytel list?
No
Why do you think the DOT count is misleading? Are their figures incorrect?
As posted above, they (DoT) apparently subdivided their count by model variation, so that, e.g., the two full size trucks listed by Edmonds don't even appear on the DOT list. The Money CNN article explains further.

The question is not "Which particular model is the most popular",
Agreed.
it is "Are more US makes sold, or more foreign makes.".
Agreed

It turns out that foreign makes comprise 55% of the market in general
True

and it should come as no surprise that they would comprise 55% of the C4C program.
It turns out they do not, not even close per Edmunds. C4C has mostly been domestic, and largely SUVs and trucks.
 
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  • #102
mheslep said:
It turns out they (foreign makes) do not (comprise 55% of the C4C market), not even close per Edmunds. C4C has mostly been domestic, and largely SUVs and trucks.
CNN said:
While critics had feared that car shoppers would use the program mostly to buy trucks, in fact 83% of the vehicles traded in have been trucks and SUVs while 60% of vehicles purchased were passenger cars, according to Secretary of Transportation Ray LaHood.
This is from the link you posted. I think you read it wrong. I didn't see anything in either of the links you posted that would help answer the question at hand, foreign vs domestic.
 
  • #103
Unless I missunderstood the story, the autobytel data was people searching if their TRADE-IN car qualified. So the data seems to suggest that the majority of people are looking to get rid of their SUV/pickup.
Of course it doesn't mean they didn't go out and buy a new version of the same SUV/Pickup that gets 1mpg more.
It may also be that people trading in a 20 year old Buick didn't go online to look it up because 20year old clunker driver != web user, or because it was obvious that it qualified and people were only researching edge cases.
 
  • #104
jimmysnyder said:
This is from the link you posted. I think you read it wrong.
No, that quote is from the August 5th article which is based upon the DoT list. Three days later in the August 8th article they challenge all the conclusions of the DoT list, based on the Edmunds list.

I didn't see anything in either of the links you posted that would help answer the question at hand, foreign vs domestic.
We certainly have help, just not proof. We don't know what the sales distribution looks like for, say, #11 through #50. But given there are only two foreign makes in the top 10, the odds favor a majority domestic source for C4C.
 
  • #105
mheslep said:
No, that quote is from the August 5th article which is based upon the DoT list. Three days later in the August 8th article they challenge all the conclusions of the DoT list, based on the Edmunds list.

We certainly have help, just not proof. We don't know what the sales distribution looks like for, say, #11 through #50. But given there are only two foreign makes in the top 10, the odds favor a majority domestic source for C4C.
I have posted a reference for the case that more cars of foreign make were sold under the Cash for Clunkers program than domestic. You have posted no such link to support your case. Please don't drag this out. Wait until you have such a link and then post it. Thanks.
 
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  • #106
Let me just report in case this got buried..

The CARS program is absolutely idiotic:

1) We are taking perfectly drivable cars, that work perfectly fine, and DESTROYING them and turning them into scrap for the benefit of new car dealers...

2) We are mostly purchasing foreign cars with these incentives.

3) We are piling more debt onto a consumer already crushed by debt... and taking cars that are already payed off, destroying them, taking money from ourselves and giving people money to buy new cars...

4) We are hurting the used car market SIGNIFICANTLY as cars are being DESTROYED rather than sold.. and auction prices for used cars are going up to reflect this...

5) With the amount of debt and issues the economy has now, we need to drive our cars until the engines fall out...

End of Story...
 
  • #107
bleedblue1234 said:
1) We are taking perfectly drivable cars, that work perfectly fine, and DESTROYING them and turning them into scrap for the benefit of new car dealers...
Car dealers are people too. And all that money eventually flows back into the economy, polyester suits and cheap cologne don't grow on trees.
2) We are mostly purchasing foreign cars with these incentives.
Most of them are built in the USA - Germany and Japan need somewhere with a cheap disposable work force. And anyway the German and Japanese car makers are public companies so Wall St investors can buy shares in them. Would you rather your pension was invested in VW or GM? By not buying a Porsche you risk the life savings of little old ladies.
3) We are piling more debt onto a consumer already crushed by debt... and taking cars that are already payed off, destroying them, taking money from ourselves and giving people money to buy new cars...
Thats Capitalism baby
4) We are hurting the used car market SIGNIFICANTLY as cars are being DESTROYED rather than sold.. and auction prices for used cars are going up to reflect this...
See, a success (and you wondered why economics was called the dismal science)
5) With the amount of debt and issues the economy has now, we need to drive our cars until the engines fall out...
Like Volvo - do you really want America to be more like Sweden ?
 
  • #108
mgb_phys said:
bleedblue1234 said:
1) We are taking perfectly drivable cars, that work perfectly fine, and DESTROYING them and turning them into scrap for the benefit of new car dealers...
Car dealers are people too. And all that money eventually flows back into the economy, polyester suits and cheap cologne don't grow on trees.
The broken glass theory of economics, again?
 
  • #109
mgb_phys said:
See, a success (and you wondered why economics was called the dismal science)
A success by pricing some people out of the used car market?
 
  • #110
bleedblue1234 said:
Let me just report in case this got buried..

The CARS program is absolutely idiotic:

1) We are taking perfectly drivable cars, that work perfectly fine, and DESTROYING them and turning them into scrap for the benefit of new car dealers...
Perfectly drivable cars that get crappy gas mileage and aren't worth that much.
I think the buyers are benefiting also.
4) We are hurting the used car market SIGNIFICANTLY as cars are being DESTROYED rather than sold.. and auction prices for used cars are going up to reflect this...
Let's see. What's going to be left? Used cars that get good gas mileage, and used cars that get crappy gas mileage worth more than $4500.
5) With the amount of debt and issues the economy has now, we need to drive our cars until the engines fall out...
If not for a similar program, I'd have driven my ebola infected car forever. It leaked from every orifice imaginable. It took me a week before I got out of the habit of looking in the rear view mirror every time I stepped on the gas to see how much smoke I was generating.
End of Story...
Not so fast... My new truck is actually getting better mileage in the city than the epa says it should get on the highway, which is 40% better than the car I traded in.

Although it was Ford that gave me the $5000 rebate and $50 for old Ebola, the effect was the same as this program.

I actually thanked the dealership for not making me pay them to take my old car as a trade-in.
 
  • #111
OmCheeto said:
Perfectly drivable cars that get crappy gas mileage and aren't worth that much.
I think the buyers are benefiting also.

Let's see. What's going to be left? Used cars that get good gas mileage, and used cars that get crappy gas mileage worth more than $4500.

If not for a similar program, I'd have driven my ebola infected car forever. It leaked from every orifice imaginable. It took me a week before I got out of the habit of looking in the rear view mirror every time I stepped on the gas to see how much smoke I was generating.

Not so fast... My new truck is actually getting better mileage in the city than the epa says it should get on the highway, which is 40% better than the car I traded in.

Although it was Ford that gave me the $5000 rebate and $50 for old Ebola, the effect was the same as this program.

I actually thanked the dealership for not making me pay them to take my old car as a trade-in.


A) Maybe it is a good incentive for you.. but at best it pushes a little bit of car sales at the cost of a debt riddled consumer (on the average) and more federal dollars at a huge waste to comparable programs...

"As a carbon dioxide policy, this is a terribly wasteful thing to do," said Henry Jacoby, a professor of management and codirector of the MIT Joint Program on the Science and Policy of Global Change. "The amount of carbon you are saving per federal expenditure is very, very small."

B) The US needs to save all of the money it can... we should not be artificially stimulating car sales by destroying perfectly drivable cars... it is like during the depression years when the government was destroying perfectly good corn so that they could raise prices for the farmers... its what governments do best... stupid things...

C) The US cannot afford to be wasting any money right now... the government is running $2,000,000,000,000 deficits (incidentally FOUR TIMES the Bush years deficits- not that he wasn't a terrible president) and we need to ensure that for the safety of our future, our kids future, and the future of the US dollar and the economy, that we be fiscally responsible...
 
  • #112
http://abcnews.go.com/Politics/wireStory?id=8316625
They can also buy versions of the 2009 Lexus RX 350 or 2009 Lincoln MKX, both pricey five-passenger utility vehicles that get about 19 mpg and are capable of towing a small boat...Even a high-end 2009 BMW X3 crossover utility vehicle, priced at just under $40,000, counts as a gas saver eligible under the government program, with 19 mpg.
 
  • #113
bleedblue1234 said:
A) Maybe it is a good incentive for you.. but at best it pushes a little bit of car sales at the cost of a debt riddled consumer (on the average) and more federal dollars at a huge waste to comparable programs...
I disagree. As I've said before, it will take only 2 years for the 3 billion dollars to be recouped in fuel savings. In 4 years, another 3 billion dollars will be flowing through the economy. Also, the cars should all be paid off by then, which means everyone who bought a car due to the CARS program should have a spare $250-$1000 to pump back into the economy each month.
B) The US needs to save all of the money it can...
I disagree. Saving money is the wrong thing to do right now. Fuzzyfelts husband said so. And I trust https://www.physicsforums.com/member.php?u=23973".

we should not be artificially stimulating car sales by destroying perfectly drivable cars... it is like during the depression years when the government was destroying perfectly good corn so that they could raise prices for the farmers... its what governments do best... stupid things...
I disagree. I'm not sure what universe you live in, but where I'm from, http://carbonfreeeconomy.com/wp-content/uploads/2008/12/chevy-volt-concept-07.jpg" , not 18 or less. I say crush them all.

C) The US cannot afford to be wasting any money right now... the government is running $2,000,000,000,000 deficits (incidentally FOUR TIMES the Bush years deficits- not that he wasn't a terrible president) and we need to ensure that for the safety of our future, our kids future, and the future of the US dollar and the economy, that we be fiscally responsible...

I disagree. And you make it sound like Obama is responsible for the $2 trillion dollar deficit. http://www.propublica.org/special/government-bailouts" , if the money hadn't been spent, we'd probably all be working in poor farms and standing in food lines right now.(Ok. I made that up. He said; "But without this help, the downturn would be even more severe")

But this is why I simply adore the CARS program. It's penny ante compared to the TARP and other bailouts. And we get something tangible for it: Shiny new cars! Which might take our minds off the fact that http://abcnews.go.com/Business/wireStory?id=8211048" .
 
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  • #115
OmCheeto said:
I disagree. As I've said before, it will take only 2 years for the 3 billion dollars to be recouped in fuel savings. In 4 years, another 3 billion dollars will be flowing through the economy. Also, the cars should all be paid off by then, which means everyone who bought a car due to the CARS program should have a spare $250-$1000 to pump back into the economy each month.
You skipped some steps OmCheeto. You can't claim the fuel savings came from just the ~$4000 federal buy out. Someone had to go and buy a new ~$20k to $30k car to get the fuel savings, so a great deal more than $3 billion is being spent to achieve theoretical savings. Then there's Jevon's paradox, which when applied to cars says people will simply drive more when a mile cost them less.

But this is why I simply adore the CARS program. It's penny ante compared to the TARP and other bailouts. And we get something tangible for it: Shiny new cars!...
The buyout program got old cars off the road and their engines spiked. The buyout program nudged people in the direction of new cars, but the new cars came out individual pockets.
 
  • #116
Al68 said:
The broken glass theory of economics, again?

You are again ignoring the gains in the GDP, which represent wealth not sent to foreign oil suppliers. How many times do you need to be told about this before you understand?
 
  • #117
Ivan Seeking said:
You are again ignoring the gains in the GDP, which represent wealth not sent to foreign oil suppliers. How many times do you need to be told about this before you understand?
I'm ignoring nothing. I wish you would refrain from making false personal statements about other people. You are again ignoring the losses in GDP due to the money being taken from the economy, and the loss of the associated wealth creation. (Unless you actually think government is more efficient at wealth creation than the people the money is taken from.)

How many times do you need to be told about this before you understand?
 
  • #118
mheslep said:
You skipped some steps OmCheeto. You can't claim the fuel savings came from just the ~$4000 federal buy out. Someone had to go and buy a new ~$20k to $30k car to get the fuel savings, so a great deal more than $3 billion is being spent to achieve theoretical savings. Then there's Jevon's paradox, which when applied to cars says people will simply drive more when a mile cost them less.

The buyout program got old cars off the road and their engines spiked. The buyout program nudged people in the direction of new cars, but the new cars came out individual pockets.

Exactly! The economy has been tanking because people are afraid. The way to get it back on track is to get people buying again. A $3 billion kicker spawned a $12 billion spending spree. Nothing better for an economy than getting money flowing again.

I was probably too succinct in my post. I try not to put people to sleep, as did my economics instructor back at university.

And I don't buy Jevon's paradox in this scenario. I don't drive a single mile further than I used to. I have less money to buy gas with, because I've got a car loan for the next 4 years.
 
  • #119
OmCheeto said:
Exactly! The economy has been tanking because people are afraid. The way to get it back on track is to get people buying again. A $3 billion kicker spawned a $12 billion spending spree. Nothing better for an economy than getting money flowing again.
The people that spend money productively, hiring, investing in new business or projects, are afraid because they do know what stunt the government is going pull next.

And I don't buy Jevon's paradox in this scenario. I don't drive a single mile further than I used to. I have less money to buy gas with, because I've got a car loan for the next 4 years.
Yeah, Jevon's must be all BS then.
 
  • #120
The Cash for Clunkers program is so successful that it now includes thermal imagers! :smile:

C4C_top_600px.jpg

http://www.emarkmail.com/r.pl?tqfVJZrlW1sFf4vx_6746d3a510d44c74
 
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  • #122
https://www.youtube.com/watch?v=<object width="425" height="344"><param name="movie" value="http://www.youtube-nocookie.com/v/VES_eCM1R78&hl=en&fs=1&"></param><param name="allowFullScreen" value="true"></param><param name="allowscriptaccess" value="always"></param><embed src="http://www.youtube-nocookie.com/v/VES_eCM1R78&hl=en&fs=1&" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="425" height="344"></embed></object>

Go to 7:20
 
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  • #123
bleedblue1234 said:
https://www.youtube.com/watch?v=<object width="425" height="344"><param name="movie" value="http://www.youtube-nocookie.com/v/VES_eCM1R78&hl=en&fs=1&"></param><param name="allowFullScreen" value="true"></param><param name="allowscriptaccess" value="always"></param><embed src="http://www.youtube-nocookie.com/v/VES_eCM1R78&hl=en&fs=1&" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="425" height="344"></embed></object>

Go to 7:20

He ignores:

Payback perhaps 2 or 3 times in GDP
Payback in health benefits by reducing emissions
Payback in reduced reliance on foreign suppliers for energy
Payback in reducing the danger to existing drivers of fuel efficient vehicles, by taking more of the monster SUVs and monster trucks off the road.
Payback later for poor people who will have greater access to more fuel-efficient vehicles.
Payback over not just the remaining life of the gas hog traded in, but also over the entire life of each new small car that would have been another gas guzzling SUV or truck, were it not for the cash for clunkers program.

Given that this is a money maker and not a money loser, he ignores the tremendous stimulus to the economy provided by a quick injection of several billion dollars. He ignores the pressure that this helps to put on auto makers to produce more fuel-efficient cars that can compete. He ignores the cost of maintaining old vehicles, lost productivity due to transportation problems, as well as the fact that the most important thing to get the economy moving again is to increase consumer spending. The fact is that most of these cars probably wouldn't have lasted much more than five years, and those that would have would be increasingly offensive to everyone as they began to belch smoke, guzzle even more gas, and put everyone on the road in jeopardy as the vehicles grow unsafe and unreliable. He also assumes that people who can't afford to buy a car are buying one when they don't need to, when in fact there are many people who need to buy couldn't, but now can because of the inflated value of their old car. Also, there is nothing more beautiful than an SUV in a car crusher. Now the beasts can be recycled and the materials put to productive use.

The cash for Clunkers program is a win win win, which is why it is probably the most successful government program of its kind seen in this country any time in the last forty years. The biggest problem is that it was so successful that the payment system has been overwhelmed. Obama said today that they have hired three or four times the number of people planned while trying to respond to the incredible demand for payment, from auto dealers all over the country. The only thing wrong with this program is that it has been too successful for the paperwork stream.
 
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  • #124
Ivan Seeking said:
He ignores:

Payback perhaps 2 or 3 times in GDP...
Where are you getting this?
 
  • #125
Payback perhaps 2 or 3 times in GDP

where are you getting this from?

Payback in health benefits by reducing emissions

again subjective, and what scientific study has been done about this, much less how much emissions are being reduced (most scientists say an extremely small percentage)

Payback in reduced reliance on foreign suppliers for energy

ok... but we are not buying all electric vehicles, and also we are buying foreign cars (to some effect). And you forgot to add in the fact that we are paying for these new cars through financing from abroad and at a cost of a debt riddled consumer... (that can't afford to buy a car)...

Payback in reducing the danger to existing drivers of fuel efficient vehicles, by taking more of the monster SUVs and monster trucks off the road.

Again, statistics please and why can't we phase them out over a lengthy period of time rather than permanently destroying capital and perfectly drivable vehicles...

Payback later for poor people who will have greater access to more fuel-efficient vehicles.

again if they cannot afford to buy a car, they shouldn't ... its economic suicide in the long term... for them and for society...

Payback over not just the remaining life of the gas hog traded in, but also over the entire life of each new small car that would have been another gas guzzling SUV or truck, were it not for the cash for clunkers program.

Again the small gain vs. the enormous cost to the consumer and the government...

Given that this is a money maker and not a money loser

again I don't see how this can be true. we are destroying our own capital that is owned by a society free and outright, it is absolutely ludicrous to think it is more cost-effective to destroy our own cars and buy cars on credit... you have a false interpretation of how the system works...

he ignores the tremendous stimulus to the economy provided by a quick injection of several billion dollars

you ignore the cost of the artificial demand spike and the cost of funneling capital from productive areas of the economy to consumer spending on cars that don't need to be purchased, several economists have said that this will reduce overall economic activity because people now have a new car payment to take care of, and we need to be saving in the first place... we need to save our money to rebuild productive parts of this economy...

He ignores the pressure that this helps to put on auto makers to produce more fuel-efficient cars that can compete

maybe so, but if it is economical to produce cars that aren't fuel efficient and that people will still purchase, then that is what car makers should do... if the government got out of the way a long time ago and did not subsidize oil through inflation and all of this other mess of things, we would not be in this problem...

He ignores the cost of maintaining old vehicles, lost productivity due to transportation problems, as well as the fact that the most important thing to get the economy moving again is to increase consumer spending

again you see consumer spending as healthy, when infact we need to model much of what china has done and save and rebuild our industries and financial sectors... while we should not and cannot seize spending, we need to reallocate capital to producers rather than consuming vehicles...

Transporting problems?

what about the cost of melting down the vehicles... and the cost of debt to the overall economy... consumers will have less money to spend on other expenses that they may need..

The fact is that most of these cars probably wouldn't have lasted much more than five years

So... that's five years of usable driving period that is wasted and a usable product that is destroyed (again I don't know where you are getting these facts)...

and those that would have would be increasingly offensive to everyone as they began to belch smoke, guzzle even more gas, and put everyone on the road in jeopardy as the vehicles grow unsafe and unreliable.

again complete BS and liberal BS... an old car that passes all emissions tests is certified... why should we destroy it if it runs?

He also assumes that people who can't afford to buy a car are buying one when they don't need to, when in fact there are many people who need to buy couldn't, but now can because of the inflated value of their old car. Also, there is nothing more beautiful than an SUV in a car crusher. Now the beasts can be recycled and the materials put to productive use.

Huh? destroying capital is a good thing? where do you live? mars... we are wasting perfectly good capital that took labor, energy, and time to produce, and exchanging it at a cost for scrap...

The cash for Clunkers program is a win win win, which is why it is probably the most successful government program of its kind seen in this country any time in the last forty years.

uh huh... ya... whatever you say bosss...

The biggest problem is that it was so successful that the payment system has been overwhelmed. Obama said today that they have hired three or four times the number of people planned while trying to respond to the incredible demand for payment, from auto dealers all over the country. The only thing wrong with this program is that it has been too successful for the paperwork stream.

again people hired at a cost to taxpayers and a reallocation of capital that is artificial, once the program ends the demand will cease and we will be faced with issues of mis-allocated capital and more government spending... which we certainly do not need...

Thanks come again...
 
  • #126
Ivan Seeking said:
Also, there is nothing more beautiful than an SUV in a car crusher. Now the beasts can be recycled and the materials put to productive use.
such as making more SUVs. Don't forget the top ten replacement purchases include two small SUVs (Escape and Patriot) and two trucks (F150 and Silverado)

From Edmunds (via CNN):
1 Ford Escape (4WD SUV hybrid)
2 Ford Focus (sedan)
3 Jeep Patriot (4WD SUV)
4 Dodge Caliber (4WD)
5 Ford F-150 (4WD Truck)
6 Honda Civic (sedan)
7 Chevrolet Silverado (4WD Truck)
8 Chevrolet Cobalt
9 Toyota Corolla (sedan)
10 Ford Fusion (4WD hybrid)
http://money.cnn.com/2009/08/07/autos/cash_for_clunkers_sales/index.htm
 
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  • #127
Ivan Seeking said:
Payback perhaps 2 or 3 times in GDP.
Ivan, you're misusing the word "payback". Payback is a measure of return on investment. It means putting $10 in and getting $20 or $30 back (and usually also includes a timeframe for 1:1 payback). With the CARS program, you are probably saying that since the government puts in $4500 and the buyers put in $9000-$13,500, that that's a "payback" of 2-3x. But that's not payback, that's just a multiplier. The incentive is intended to multiply its own effect. I guess you could say it's "pay" without the "back". But that's an important difference:

The money starts off free, which in a payback calculation is zero payback (infinite ROI), but that's because it is borrowed money. The ROI drops over time, though, as the money accrues interest and has to be paid back. Whether the stimulus of the money going around in circles will outweigh the loss due to interest and unavailability of the money for future spending is not an easy question to answer. Adding in the fact that capital is being destroyed implies strongly to me, though, that it can't be anything but a loser. In other words, the final "pay" into the GDP isn't going to be 2x to 3x, it is going to be 0x or less.

Certainly, though, all of the benefit is front-loaded, coming over last month and next month and all of the cost comes later. That is, of course, one of the primary complaints of most people who oppose the idea. It will give a 1 quarter boost to the GDP and then lower the gdp for the next 5 years. As with most of his stimulus plans, if he succeeds in actually spending the money, he'll pull us out of the recession sooner than we would have gotten out on our own (perhaps a month or two sooner), but he'll keep the GDP down and unemployment up for the next decade or more. I'm not a big fan of trying for a 6 month improvement at the expense of the next 10 years.
 
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  • #128
Ivan Seeking said:
The cash for Clunkers program is a win win win, which is why it is probably the most successful government program of its kind seen in this country any time in the last forty years. The biggest problem is that it was so successful that the payment system has been overwhelmed. Obama said today that they have hired three or four times the number of people planned while trying to respond to the incredible demand for payment, from auto dealers all over the country. The only thing wrong with this program is that it has been too successful for the paperwork stream.
If we judge success by how well the program did at giving taxpayer money away and destroying wealth, sure it's a success. Gee, more people wanted to take the loot than we thought when we offered it, big success. :rolleyes:
 
  • #129
Didn't you know, Al67, popularity*=success! :rolleyes:

So I think the government should start dropping bundles of hundred dollar bills from helicopters at sporting events. That would be so much more successful, not to mention efficient: it's fast and there's no paperwork!

*Popularity with the people being handed the money.
 
  • #130
russ_watters said:
Ivan, you're misusing the word "payback". Payback is a measure of return on investment. It means putting $10 in and getting $20 or $30 back (and usually also includes a timeframe for 1:1 payback). With the CARS program, you are probably saying that since the government puts in $4500 and the buyers put in $9000-$13,500, that that's a "payback" of 2-3x. But that's not payback, that's just a multiplier. The incentive is intended to multiply its own effect. I guess you could say it's "pay" without the "back". But that's an important difference:

The money starts off free, which in a payback calculation is zero payback (infinite ROI), but that's because it is borrowed money. The ROI drops over time, though, as the money accrues interest and has to be paid back. Whether the stimulus of the money going around in circles will outweigh the loss due to interest and unavailability of the money for future spending is not an easy question to answer. Adding in the fact that capital is being destroyed implies strongly to me, though, that it can't be anything but a loser. In other words, the final "pay" into the GDP isn't going to be 2x to 3x, it is going to be 0x or less.

Certainly, though, all of the benefit is front-loaded, coming over last month and next month and all of the cost comes later. That is, of course, one of the primary complaints of most people who oppose the idea. It will give a 1 quarter boost to the GDP and then lower the gdp for the next 5 years. As with most of his stimulus plans, if he succeeds in actually spending the money, he'll pull us out of the recession sooner than we would have gotten out on our own (perhaps a month or two sooner), but he'll keep the GDP down and unemployment up for the next decade or more. I'm not a big fan of trying for a 6 month improvement at the expense of the next 10 years.
Yes this is best described as a multiplier effect, if there is one, and not a payback. I suspect since Ivan mentioned GDP he's alluding to the http://en.wikipedia.org/wiki/Fiscal_multiplier" Nobody claims 2 or 3x multipliers.
 
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  • #131
Ivan Seeking said:
Payback in reducing the danger to existing drivers of fuel efficient vehicles, by taking more of the monster SUVs and monster trucks off the road.
Does it? SUVs are perfectly acceptable replacements under the rules of the Cash for Clunkers program. If you trade in an SUV the improvment in fuel efficiency required of the replacement is much smaller and if your SUV happens to be a super large 'class 3 vehicle' you can only trade it in for another SUV and it only needs to have a one mile to the gallon improvement in fuel efficiency.

Ivan said:
Payback later for poor people who will have greater access to more fuel-efficient vehicles.
You mean maybe lower middle class people? Most actual poor people buy used so that they don't have to worry about car payments and severely hiked insurance rates. Cash for Clunkers means a whole crap load of used vehicles that will not be on the market, nor will their parts be available for fixing the old cars of the actual poor people who still could not have afforded to buy a new car even with the free money, AND the actual poor people will still be unable to afford to buy themselves new cars.

Ivan said:
Payback over not just the remaining life of the gas hog traded in, but also over the entire life of each new small car that would have been another gas guzzling SUV or truck, were it not for the cash for clunkers program.
See above. Many of those trade ins just became newer slightly less gas guzzling trucks and SUVs.


No more kool aid for you Ivan!
 
  • #132
russ_watters said:
So I think the government should start dropping bundles of hundred dollar bills from helicopters at sporting events. That would be so much more successful, not to mention efficient: it's fast and there's no paperwork!

Exactly! You'll only have to drop $250,000 per stadium, but the people will pay a total of $2.5 million to go to the game. And if you drop big bills (and encourage businesses to not have enough change!) you'll get a multiplier effect because people will pick up a $500 bill and put in money of their own to round out the purchase.`
 
  • #133
TheStatutoryApe said:
If you trade in an SUV the improvment in fuel efficiency required of the replacement is much smaller and if your SUV happens to be a super large 'class 3 vehicle' you can only trade it in for another SUV and it only needs to have a one mile to the gallon improvement in fuel efficiency.

Source?
 
  • #134
I suppose that if I had a clunker with a trade-in value of $4501, I would not take advantage of this program in any case. If I had a clunker with a trade-in value of $4499, then I might consider it, but I wouldn't buy a car for the sole purpose of cadging a dollar off some other poor taxpayer, I would have to actually need the car I was buying. If I had a clunker with a trade-in value of $1, then I essentially have a ticket worth $4499, but only if I use it. If I have need of a car, I've hit the jackpot. On the other hand, if I don't need a car I still might find some way to monetize the clunker. Perhaps I can sell the new car for $3000 less than I paid for it and pocket $1499. Bottom line, I am unlikely to take advantage of this program unless I need a car, and am willing to buy a new one. Has anyone calculated the effect of this program on sales in the coming months. How much has the demand from that period been scrunched up into these past few weeks? Has there been any real increase in demand for new cars as a result of this program?
 
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  • #135
CRGreathouse said:
Exactly! You'll only have to drop $250,000 per stadium, but the people will pay a total of $2.5 million to go to the game. And if you drop big bills (and encourage businesses to not have enough change!) you'll get a multiplier effect because people will pick up a $500 bill and put in money of their own to round out the purchase.`
Of course, just like with the clunkers which would eventually get phased out anyway (people do eventually replace their cars), Phillies and Eagles games are already sold out...
 
  • #136
jimmysnyder said:
I suppose that if I had a clunker with a trade-in value of $4501, I would not take advantage of this program in any case. If I had a clunker with a trade-in value of $4499, then I might consider it, but I wouldn't buy a car for the sole purpose of cadging a dollar off some other poor taxpayer, I would have to actually need the car I was buying. If I had a clunker with a trade-in value of $1, then I essentially have a ticket worth $4499, but only if I use it. If I have need of a car, I've hit the jackpot. On the other hand, if I don't need a car I still might find some way to monetize the clunker. Perhaps I can sell the new car for $3000 less than I paid for it and pocket $1499. Bottom line, I am unlikely to take advantage of this program unless I need a car, and am willing to buy a new one. Has anyone calculated the effect of this program on sales in the coming months. How much has the demand from that period been scrunched up into these past few weeks? Has there been any real increase in demand for new cars as a result of this program?
Not sure if anyone has calculated the effect (don't worry - it won't take long to see it), but plenty of people have pointed out that it is likely the effect is more a shifting of car sales than an actual increase in car sales.
 
  • #137
Sales are definitely up from January's lows, but it is impossible to isolate the cause given the recession.
http://online.wsj.com/article/SB124931253429401705-email.htmlhttp://online.wsj.com/article/SB124931253429401705.html#project%3DAUTOS90218%26articleTabs%3Dinteractive
...The closely watched annualized selling pace rose to 11.24 million vehicles, a significant jump from June's 9.69 million rate. But it was down from the year-ago pace of 12.5 million sales, and still far short of the 16 million annual level once considered normal.

GM and Chrysler Group LLC suffered their smallest sales declines of the year. GM sales fell 19.4% to 188,156 vehicles, while Chrysler's fell 9.4% to 88,900. Toyota Motor Corp. said sales slipped 11% to 174,872 vehicles, and estimated that clunkers deals boosted sales by 30,000 to 32,000 vehicles.

Ford, meanwhile, said its July light-vehicle sales rose 2.4% from a year ago to 164,795 -- the company's first year-over-year gain in 20 months.
 
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  • #138
jimmysnyder said:
Has anyone calculated the effect of this program on sales in the coming months. How much has the demand from that period been scrunched up into these past few weeks? Has there been any real increase in demand for new cars as a result of this program?

I'd say that it was just a matter of time before last years potential buyers went shopping.

For the full year of 2008, all of the Big Six automakers reported sales declines. In total, the industry sold 13.2 million vehicles for an 18 percent drop from 2007's 16.1 million. http://www.autoobserver.com/2009/01/2008-us-auto-sales-are-worst-since-1992.html"

I don't think it is something one can calculate without knowing the thoughts and bank balances of 300 million people. They simply held on to their old cars for 6 years instead of 5. I don't see that the 3 million car sales deficit needs to be evened out with a 3 million car sales surplus.

I think that the only thing we need is for auto sales rates to stabilize at their previous level.
 
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  • #139
OmCheeto said:
snip

I think that the only thing we need is for auto sales rates to stabilize at their previous level.

:smile:

I hope this is a joke.

To get auto sales at previous levels we would have to have a MASSIVE infusion of brand new capital and new money sloshing around, and people would have to be insane to go on the same spending binge that threw the economy off of a cliff.

The real baseline demand for vehicles isn't there anymore... we don't have excess foreign dollars sloshing around the country, we can't use our houses as ATM's... the demand levels are crashing to what they should have been all along. People are buying cars only when they actually need to purchase them, not when the next late model Lexus rolls off the factory line... and that is how it should be, especially with the current fiscal situation of everyone in this country, government included.

You live in a dream world...
 
  • #140
bleedblue1234 said:
:smile:

I hope this is a joke.
Nope.
To get auto sales at previous levels we would have to have a MASSIVE infusion of brand new capital and new money sloshing around, and people would have to be insane to go on the same spending binge that threw the economy off of a cliff.
I disagree.
The real baseline demand for vehicles isn't there anymore...
?
we don't have excess foreign dollars sloshing around the country, we can't use our houses as ATM's...
Ha ha! You got me there. I bought my house for $22k, and now 20 years later, I owe $40k!
It was fun while it lasted though. Thank god it's still worth $150k, or I'd be screwed if I lost my job.
the demand levels are crashing to what they should have been all along. People are buying cars only when they actually need to purchase them, not when the next late model Lexus rolls off the factory line...
I kind of agree with you here also. I average 50 years between new car purchases.
and that is how it should be, especially with the current fiscal situation of everyone in this country, government included.
Actually, 'everyone' is a bit of an exaggeration. I'm actually doing quite well.
You live in a dream world...
Now that, is the only fact that I have ever noticed to roll off the ends of your fingers.
 
  • #141
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  • #142
Dough for Dumps?


After having given away billions faster than even the optimists had anticipated, it was announced today that the federal government's "Cash for Clunkers" program is coming to an early end. But, based on the standards of economic analysis which prevail in Washington, Wall Street and academia, the program must be considered a master stroke of public policy. These experts will tell you that by mandating that citizens destroy older (but still working) vehicles to receive $4,500 toward the purchase of a new car, the program not only revved up the economy by encouraging Americans to borrow more, but it may have, perhaps, made some great strides in saving the planet by reducing carbon emissions.

With this solid win-win now on the books, the time has come to put the strategy to work in other areas. For instance, the government could use these lessons learned to help the moribund housing sector. I propose the "Dough for Dumps" stimulus program. Here's how it would work:

Homeowners struggling to make payments on environmentally inefficient homes can apply for government aid to destroy their old homes and receive guaranteed loans to buy newly constructed houses, provided they are furnished with the latest "green" advancements in energy systems and building materials. As with the "Cash for Clunkers" program, this plan would solve many problems at once.

First, it will help put a floor under falling home prices by reducing the glut of houses currently on the market. The best way to stop prices from falling, and thereby reduce the foreclosure wave, is to reduce supply.

Left alone, the market would do this by lowering prices, which would bring more buyers into the market. But this approach falls on the back of homeowners whose only crime was to overpay for a house. A more socially equitable method would be for all taxpayers to shoulder the burden through a government bulldozing program.

In addition to contracting the supply of homes, the program would also stimulate the economy by providing funds to hire environmentally savvy builders and contractors (not to mention the workers needed to demolish the old homes). The resulting demand would help to reduce unemployment, especially in the housing sector. Government incentives and subsidies could also give an important boost to the developers and manufacturers of "green" windows, solar heating systems, furnaces and water systems.

Once this program has rejuvenated the real estate market, citizens should also be encouraged to burn their old furniture and clothing, thereby sparking demand for new goods from our nation's struggling retailers. When you think about it, the possibilities are endless.

If these proposals seem ridiculous, it is because they are. But they are no less ridiculous than the "Cash for Clunkers" program that inspired them. All are examples of the "broken window" fallacy of economics, which argues that economic activity can be stimulated by the need to replace something that has been destroyed.

Unfortunately, many of our "best" economists subscribe to the notion. But society gains nothing from redundant activities. Digging holes just to fill them up does employ workers, but the work offers no benefit to anyone not receiving the wage. Absent government incentives, such a job would create no profit and could only exist as a result of a subsidy from someone else. Such work also prevents workers from accomplishing tasks that create real wealth and actually benefit society.

In the case of "Cash for Clunkers," the government provided an incentive for citizens to destroy otherwise working assets, fully owned by their users, in exchange for a smattering of "green" tech and a lot more debt. Could anyone look at our country now and determine that our problems stem from a lack of new cars? Given our level of economic output, it is likely that we already have too many cars. On the other hand, it should be obvious to anyone that American consumers are already burdened by too much debt. The program distorts the market by giving car owners a powerful incentive to take out new loans for cars they may not need.

The environmental benefits of the program are much more difficult to quantify and extremely unlikely to overcome the waste inherent in the wanton destruction of working assets. On a practical level, the premature shelving of working cars will add extra pressures to our waste management capacity, and create emissions and pollution through the compaction/incineration processes that accompanies disposal. On an abstract level, this program punishes every consumer who sought to be ahead of the curve in environmental responsibility by using their own resources to upgrade a clunker. Some may think twice before making such a move without government money on the table.

More fundamentally however is the question of making wise decisions in a recession. Given the fragility of our finances, we should use our resources wisely, pay down our debt, replenish our depleted savings, and make investments in time and energy that offer a tangible benefit. The "Cash for Clunkers" program is the exact opposite of what we need and a glaring example of the lack of economic understanding currently on tap in Washington.
 
  • #143
This comes in from an interesting corner, the Germans. Interesting in that they and others declined to follow the US down so large a stimulus path, despite US prodding (initially). This German economist say's the fiscal multiplier from traditional government deficit spending under these circumstances is, well, there is none.

http://www.voxeu.org/index.php?q=node/3949
Volker Wieland
Professor for Monetary Theory and Policy in the House of Finance at Goethe University of Frankfurt and Director of the Center for Financial Studies
voxeu said:
...Our findings confirm the earlier analysis with models of the US economy. Once you allow for a significant role of forward-looking behaviour by households and firms, there is no multiplier. The expectation of future tax increases, or rising government debt and future interest rate increases leads to a reduction in private consumption and investment spending. This holds in particular for the three New Keynesian models developed by economists at the ECB, the IMF and the EU Commission (see Smets and Wouters 2003, Laxton and Pesenti 2003, and Ratto, Roeger and in’t Veld 2009)...
(Hat tip to Prof Mankiw)

So the CARS program according to this theory stimulated some new car sales in August 2009, got some of the worst gas hogs off the road, but nothing more economically.
 
  • #144
mheslep said:
So the CARS program according to this theory stimulated some new car sales in August 2009, got some of the worst gas hogs off the road, but nothing more economically.

It depends - the report says;
"The expectation of future tax increases, or rising government debt and future interest rate increases leads to a reduction in private consumption and investment spending"

So people who think that the government will somehow have to pay for this in the future - which means they will have to pay for it - hung onto their money. The others went 'ooh free money' and borrowed to buy a new car.
 
  • #145
mgb_phys said:
It depends - the report says;
"The expectation of future tax increases, or rising government debt and future interest rate increases leads to a reduction in private consumption and investment spending"

So people who think that the government will somehow have to pay for this in the future - which means they will have to pay for it - hung onto their money. The others went 'ooh free money' and borrowed to buy a new car.
The applies equally to everyone, car purchase or no. The CARS people can also fall into the same 'expectors' category, by cutting back other future spending to balance out the car payment they've now incurred. Then there is no net stimulative effect if net spending remains flat.
 
  • #146
mheslep said:
So the CARS program according to this theory stimulated some new car sales in August 2009, got some of the worst gas hogs off the road, but nothing more economically.

Again you ignore the reduction in lost wealth by reducing demand for imported oil. That is where we find the real multiplier for the CARS program.
 
  • #147
mheslep said:
The CARS people can also fall into the same 'expectors' category, by cutting back other future spending to balance out the car payment they've now incurred. Then there is no net stimulative effect if net spending remains flat.

But there's no need to cut back on anything - interest rates on credit cards are really low, so you can just put the payments on the credit card. If it becomes a problem the house is worth $500,000 - it's just a temporary glitch in the market.

And if the borrowing becomes a problem - well you can always have another bailout ;-)
 
  • #148
Ivan Seeking said:
Again you ignore the reduction in lost wealth by reducing demand for imported oil. That is where we find the real multiplier for the CARS program.
I hope CARS reduces imported oil, but that's not a fiscal multiplier effect as addressed by the above.

A parallel example to clarify: say the government funds a new/repaired bridge. The first possible benefit, outlined by the fiscal multiplier theory, addresses the possibility that the bridge money flows into bridge company pockets, then into employee and supplier pockets, and so on. Along the way the theory is that more total spending occurs than was originally spent by the government. (The economist Wieland above says this is unlikely). The second possible benefit obtained by the bridge is improved infrastructure (that parallels the possible lowered demand for oil in CARS), i.e, it enables greater transportation efficiency (or not - they can also be useless boondoggles - bridges to nowhere). The point is that fiscal stimulus and infrastructure improvement are two different things.
 
  • #149
mgb_phys said:
But there's no need to cut back on anything - interest rates on credit cards are really low, so you can just put the payments on the credit card. If it becomes a problem the house is worth $500,000 - it's just a temporary glitch in the market...
In your case, good for you. Reread the source. At least some respected macroeconomic models say people will expect increasing tax rates and interest rates in the future due to the present large increases in government deficit spending. In anticipation of that, those models predict people will cut back on spending and investment now.
 

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