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July 30, 2009 – Comments (5)

Just for days ago I reported that Cash-for-Clunkers was resulting in a HUGE response across the country.

Well, guess what folks?  The demand has indeed been so huge, that the program has already reached the quota for sales (which was supposed to last us until November!) - and the amount of money given for this program is already gone.  Read the NYTimes story for more details.

A quote from the story:

From the dealer’s point of view, the program was a resounding success.

“Two hundred and fifty thousand vehicles in four weeks?” Mr. Wood said. “One word comes out of my mouth: Wow.”

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 Now this was a form of stimulus that had profoundly good effects:

1) It was an economic stimulus where for every dollar the government spend, 4 more would be spent by consumers.  That's a 4:1 ratio for GDP:dollar spent - and is unmatched by any other stimulus that I've read about.  Remember that the highest effect from domestic stimulus spending is spending on food stamps, with a 1.73 GDP:dollar spent gain (From my blog in January of this year)  A 4:1 gain is truly awesome.  If we had spent 50 billion on this program and that resulted in equivalent car sales - that would have been a whopping 1.7% increase in our total GDP.  Not that I think it would work on such a scale (there's probably a limit to the number of people wanting to buy a new car at about 2-5 more buyers more than got in on than this small run), but just to give a comparison about how positive an effect this has been, economically.

2) Replacing all these less efficient cars will result in economic savings for all the buyers in gas money in the future (oil prices will go up again, maybe not this year but not too far in the future).  Decreasing the amount of gas we use on the roads improves our trade balance, and decreases pollution.  

3) It helps automakers and dealers when they are practically down for the count.  These companies will survive and adjust in a normal economic condition.  We need to keep our manufacturing alive through this downturn - so that we still have these jobs in our economy when things return to normal.  Is this socialistic?  No.  This is the facts of modern business.  Our competition overseas has had no qualms about pulling every dirty trick to kill our manufacturing industry.  As the son of a manufacturer, I grew up hearing two tales of the problems in manufacturing.  One was that unions were killing the car industry (I think we now know this to be truth).  The second was that Japan and China were unfairly competing with our industries and getting away with it - killing our business.  Japan heavily subsidizes their car companies both directly with monetary aid, and indirectly by providing health care through the government - removing these expenses (which have been a major problem for GM, et al).  China artificially depreciates their currency to make their exports cheaper.  Both of these countries could care less about "free markets" and "fair trade", they will do whatever it takes to setup their industries, drive out our business, and then - after we're gone they'll take away the training wheels for their companies.  Its absolutely high time that we frankly talked about these issues, stopped being stubbornly idealist about "free markets" and make sure that we don't kill our own manufacturing and economy by holding on to these high words.

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 A country should be loyal to the industries that made it what it is.  We should make sure that 100 years from now we still make cars, still make steel, and are still able to call on these companies when we need them.  Remember WWII?  We stopped all car manufacturing, and turned this industry to our countries needs.  Because we had the only industry that wasn't destroyed by massive bombing (think Germany, UK, Japan, China) - we were able to make the difference then.  If we lose these industries, the next real crisis (not some crappy home building recession), but a major conflict - we'll have no backbone to stand up and fight.

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Maybe we need to craft more stimulus that promotes our country and individuals (instead of the banks):

A credit for buying a home?  A credit for buying a gym membership?  A credit for joining a program to quit smoking or lose weight?  A credit for going to back to college, or joining Americorps?   A credit for being a teacher?

These are just some possibilities of investments that could pay off in rebuilding housing, lowering future medical costs, or improving our education.

5 Comments – Post Your Own

#1) On July 30, 2009 at 11:09 PM, FreeTruth (< 20) wrote:

More than a billion dollars was allocated and according to the article that I read, only 96 million of this had been spent. Goldman Sachs must have seen this and decided that it wanted this piece of the pie too.

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#2) On July 30, 2009 at 11:24 PM, rofgile (99.25) wrote:

FreeTruth:

 Whatever you read doesn't add up.  If 250,000 vehicles were already through the program, that = (250,000) * (3500) = 875 million.  And the credits go as high as 4500 if you have the higher classification of mileage improvement.  

 The dealers have to put in applications to the transportation department for each sale.  In effect, the money is spent (though the government may not have given out the money individually back as a credit to the dealers so far).  They aren't taking any more applications at the moment because the government is already up to the spending limit authorized by congress.

"The Transportation Secretary was making calls to the House and Senate Thursday to try to line up more money. The House leaves town for its August recess on Friday." - so more money may possibly be given for this program to keep it going.

 In a normal year there are 16 million car sales, this year there were only 10 million car sales.  So, my estimation that there is only 5 times more possible buyers is probably quite a bit low.  We could extend the program to more than 10X the amount of money, and likely still have buyers (to get a GDP gain of about 0.33% overall).  I hope they go further with this stimulus.

 Japan has basically been doing a much more dramatic form of this stimulus, by forcing all car owners to match constantly rising emission standards - if effect requiring car owners to replace their cars every 5 years or so to stay on the road.  I don't think we need to go that far, but it is another example of how our competitors overseas are playing the game. 

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#3) On July 31, 2009 at 12:04 AM, FleaBagger (28.95) wrote:

Cash for clunkers has been completed 3 months ahead of schedule? Well, the economy and the environment must be safe at last!

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#4) On July 31, 2009 at 12:44 AM, NOTvuffett (< 20) wrote:

AnAmateur, you have your cash for clunker, $13/week for your Obamamobile, lol.

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#5) On August 05, 2009 at 10:26 AM, ws2000 (< 20) wrote:

I'm glad someone else noticed the disparity in the numbers.

 1 billion dollars, doled out $4500 at a time is a LOT of cars. Using the 875 million cars figure suggested by rofgile, and census data from the year 2000, which says that there were roughly 300 million people in the country at that time, that means that 300 million people bought traded in 2 or three qualifying cars apiece in the last month...

 But, I don't know THAT many people who bought a car, so something seems a little off.

Anybody else smell fraud?

 My question is, are dealers milking the clunker bill? Politicians?

 Or am I missing something obvious?

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