Cash-for-Clunkers has failed, the Car is lost

◼ Trying to manipulate the used car market had unintended consequences. - Le-gal In-sur-rec-tion

“Cash for Clunkers” may not have fulfilled its promises to boost car sales, but it did manage to shift the market equilibrium in a way that made used cars less affordable, destroyed any incentive to splurge on a new car, and is now putting auto makers at risk for another downturn in sales.

Clunker progressivism

◼ Barack Obama’s presidency has become a feast of failures whose proliferation protects their author from close scrutiny of any one of them. - George F. Will/Washington Post

“Cash for Clunkers” was born with Obama’s administration as a component of his stimulus. Its fate is a window into both why the recovery has been extraordinarily weak and what happens when progressives’ clever plans collide with recalcitrant reality....

Cash for Clunkers lasted 55 days and ended with confusion that was a preview of things to come. The New York Times explained in August 2009 the final surge of demand for clunker funds:

“Around the country, dealers had put off the laborious task of applying for the rebates . . . which requires entering the 17-character identification numbers of each vehicle to be scrapped, scanning images of proof of insurance and filling out other paperwork. The computer system was overloaded, according to the dealers. They said they would finish one page in the application, hit enter and nothing would happen. Eventually a message would appear notifying the dealer that the page had ‘timed out.’ Tom Frew, the business manager at Galpin Motors in Los Angeles, said that he needed 35 tries to register just one of the company’s 11 dealerships on the day that the program opened because of problems with the government Web site. On Friday, he spent an hour processing just one rebate application, he said.”

The recovery from the recession began in June 2009; 53 months later, vehicle sales still have not yet reached the pre-recession peak. Cash for Clunkers was prologue for the government’s vastly more ambitious plan to manage health care’s 18 percent of the economy....

The present, too, is prologue. There is heated debate about Common Core, whose advocates say it merely involves national academic targets and metrics for primary and secondary education. Critics say it will inevitably lead to a centrally designed and nationally imposed curriculum — practice dictated by targets and metrics. Common Core advocates say, in effect: “If you like your local curriculum, you can keep it. Period.”

54.5 mpg and the law of unintended consequences

◼ A perfect example is the Obama Administration’s plan to increase new car mileage standards, from the currently legislated requirement of 35.5 miles per gallon by 2016 to 54.5 mpg by 2025, as an average across each automaker’s complete line of cars and light trucks. - Net Right Daily

First, National Highway Traffic Safety Administration (NHTSA) analyses indicate that the mileage standards will add $3,000 to $4,800 to the average price of new vehicles for models from now until 2025. Moreover, this price increase does not include the $2,000 to $6,000 in total interest charges that many borrowers would have to pay over the life of a 36-60 month loan.

The consequence: 6 million to 11 million low-income drivers will be unable to afford new vehicles during this 13-year period, according to the National Auto Dealers Association (NADA). These drivers will essentially be eliminated from the new vehicle market, because they cannot afford even the least expensive new cars without a loan – and many cannot meet minimal lending standards to get that loan.

These drivers will be forced into the used car market. However, far fewer used cars are available today, because the $3-billion “cash for clunkers” program destroyed 690,000 perfectly drivable cars and trucks that otherwise would have ended up in used car lots. In addition, the poor economy is causing many families to hold onto their older cars longer than ever before.

Exacerbating the situation, the average price of used cars and trucks shot from $8,150 in December 2008 to $11,850 three years later, say the NADA and Wall Street Journal. With interest rates of 5-10% (depending on the bank, its lending standards and a borrower’s financial profile), even used cars are unaffordable for many poor families, if they can find one.

All this forces many poor families to buy “hoopties,” pieces of junk that cost much more to operate than a decent low-mileage used car. These higher operating costs can cripple families in borderline poverty situations.

The compounded financial impact is a “regressive” tax and a war on the poor.