Thursday, October 29, 2009

Cash for Clunkers: Taxpayers Cost Was $24,000 Per Car

according to The administration ridicules.

Well, my vote is for

Clunkers: Taxpayers paid $24,000 per car
( Peter Valdes-Dapena, 10/29/09 CNN)

"NEW YORK ( -- A total of 690,000 new vehicles were sold under the Cash for Clunkers program last summer, but only 125,000 of those were vehicles that would not have been sold anyway, according to an analysis released Wednesday by the automotive Web site

"Still, auto sales contributed heavily to the economy's expansion in the third quarter, adding 1.7 percentage points to the nation's gross domestic product growth.

"The Cash for Clunkers program gave car buyers rebates of up to $4,500 if they traded in less fuel-efficient vehicles for new vehicles that met certain fuel economy requirements. A total of $3 billion was allotted for those rebates.

"The average rebate was $4,000. But the overwhelming majority of sales would have taken place anyway at some time in the last half of 2009, according to That means the government ended up spending about $24,000 each for those 125,000 additional vehicle sales."

The administration tries to paint it as if is a "naysayer" (a new dirty word these days for this administration):

""It is unfortunate that has had nothing but negative things to say about a wildly successful program that sold nearly 250,000 cars in its first four days alone," said Bill Adams, spokesman for the Department of Transportation. "There can be no doubt that CARS drummed up more business for car dealers at a time when they needed help the most."" [emphasis is mine]

I thought the cash for clunkers program was all about "fuel efficiency" and "environment". (At least it was sold as such.) So now they are openly saying it was to prop up car dealers. And remember this cash for clunkers program was announced right after a boatload of GM and Chrysler dealers got axed under allegations that the dealers who donated to Republican party were targeted.

(That actually reminded me of Bear Stearns under severe liquidity crisis being forced to sell itself to J.P. Morgan Chase for $2, only to have the Federal Reserve open the discount window to investment banks after the fire sale was official. Nice job, Tim [Geithner].)

Anecdotal evidence suggests that the dealers marked up the cars eligible for the rebate, sometimes even higher than MSRP, then they gave a token discount if at all.

So who got the short end? Taxpayers who had the honor to fund the program to the tune of $24000 per car. But if you take a look at this chart from St. Louis Fed, you'll see it's who is right. The vehicle purchase collapsed back after the program. All it did was to bring forward the demand that existed anyway without the program.

Auto sales heavily aided by the cash for clunkers program contributed 1.66% to the total GDP growth of 3.5% for the 3rd Quarter. If you subtract this 1.66% and other government spending from the 3rd Quarter GDP, it would have been flat at best.

I personally would have liked to see the GDP flat to ever so slightly positive without the government intervention that distorted the picture so much to render it worthless.

The CNN link above also contains a video interview of ex-Car Czar Steve Rattner, of Quadrangle fame. (What an insult it must have been for Rick Wagoner to be fired by a person like this.)


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