Cash For Clunkers A Little Too Clunky
Being somewhat of a car nut I took a great deal of interest in the fortunes of the automobile manufacturers both foreign and domestic. It appears that few, if any, car makers are coming through this hiccup in the economy unscathed. General Motors is revealed to be the old man of the bunch. Tired and too stuck in the old ways of the old days to make much of a challenge to younger and nimbler car companies. This is not to say that the General doesn’t make good cars. It just doesn’t make many good cars efficiently. Its reputation for cutting corners and marketing shoddy cars to the public is well deserved. And while things have improved in recent years, things have not improved enough to keep GM viable without bankruptcy, a large cash infusion from the government to stay afloat, and drastic changes that would make GM unrecognizable to any Rip Van Winkle who fell asleep just ten years ago.
Even mighty Toyota, the world’s newly crowned largest car manufacturer and arguably the most profitable car company on the planet, is showing signs of a global economy in crisis. Toyota posted its first quarterly lost ever and is now firmly in circle the wagons mode. Expensive car programs like a new sports car for Lexus have been placed on indefinite hold and Toyota is rethinking its commitment to automobile racing. Every one who wheels and deals with automobiles is feeling the strain.
Interestingly, back in February, Germany was one country in the world that enjoyed an increase in new automobile sales. As part of an economic stimulus program, the German government offered anybody who turned in a car at least nine years old a subsidy for more than three thousand dollars. The result was more than a twenty percent increase in automobile sales from the same period a year ago. That’s pretty significant. And other countries quickly followed suit. There are similar programs in France, Italy and Spain.
Back in January, China slashed the sales tax on cars with engines of 1.6 liters or smaller. Designed to get the Chinese public to buy smaller, more fuel-efficient vehicles, the measure had an immediate benefit. Sales popped almost twenty percent from jus the previous month according to the China Association of Automobile Manufacturers. In January, people in China purchased almost eighty thousand more cars than the people in the United States (735,000 vehicles compared to 657,000) making China the world’s largest car market, at least for the month of January.
The United States is not simply sitting on the sidelines. As part of the military spending bill, approximately one billion dollars have been set aside by the Congress for the Consumer Assistance Recycle and Save Act of 2009. Most people call it Cash for Clunkers. The car buying public can get $3500 to $4500 dollars toward the purchase of a new car if they trade in their old vehicle. Certainly this will have an impact to our automobile industry. That’s enough money to help subsidize the purchase of a quarter million cars. And I don’t care if you’re Toyota, GM, Volkswagen, or Hyundai I would think you’d want a piece of that humongous pie.
But the American program has a few caveats. First, your current car must not get better than 18 MPG when it was new. Never mind whatever the condition it’s in now, if your car gets 19 MPG then you don’t qualify. It must not be more than twenty five years old. And you have to own the car and have it registered and insured for at least one year prior to applying. And the car you buy must get at least four miles per gallon better gas mileage. And only brand new never before owned cars qualify. Cars that are traded in under this program are destined for the scraper. And since they will be scrapped, they have no trade-in value. So cars worth more than their qualifying vouchers wouldn’t qualify. So really, how many people will be able to take advantage of this program?
The soccer mom driving an ancient minivan or the sport utility vehicle owner that wants to downsize into something smaller would probably qualify as long as their vehicle is worth less than the voucher amount. That’s a pretty narrow category. And if people are driving such transportation in a condition that makes their value less than the $3500 to $4500 dollar range, can these people really afford to go out and buy the new car at this moment in time when the economy is really hurting? Such a person in this category would probably benefit most by holding on to their jalopy even longer and weathering this economy to recover to healthy levels.
Yes buying a new car is always attractive on the surface. But dig a little deeper and you’ll see that it would take a pretty significant time to reap the benefits of buying something brand spanking new compared to holding onto a car for as long as possible or buying something used with a few miles already under the belt. And just like there are incentives to move new iron coming out of Detroit, there are incentives to buying the used merchandise as well. Some of those old machines with a few miles under their belt make good buys these days. Do your homework and shop around and you’ll find used cars at a fraction of the price of a new one even with the vouchers. Trade the old jalopy in for a newer jalopy and there’s bound to be a huge money savings.
Bottom line is that the voucher program with respect to new car sales, like most big draw offers like “no money down” or “your job is your credit” or “we’ll pay off your old car no matter how much you owe” are full of bells and whistles that might sound like a godsend, but in the end it’s just a bunch of smoke and mirrors designed to distract the public from reality. You could surrender your jalopy to the voucher program and walk away with a brand new Chevy Cobalt. But be careful! Compared to keeping that jalopy running and having the security of knowing that if anything happens you don’t have to worry about trying to make a car note is a benefit in itself. I don’t believe the voucher program is truly beneficial to the majority of the car buying public. Do your math homework before applying for this program. Like most things associated with consumerism, you just might find out you’re much better off without it.