Cash for Clunkers program ended yesterday at 8p.m. EDT. Dealerships have until 12 noon today for finalize all paperwork inputs into a government website for claims repayment.
While it certainly was a novel idea (depending on you POV)to get gas guzzlers off the road, promote a more carbon friendly trend, and feed those starving car salesman, it is lacking in a few areas.
Scope: With only $3 billion in rebate funds available there was always going to be a limit to the impact the program could provide. Estimates are that 456,000 cars were traded and sold. However, that's 456,000 out an estimated 136 million gas guzzlers still on the road today. I am no math wiz but my windows based calculator says that's just more than 1/3rd of one percent.
Temporary: There seems to be a phenomena in sales and marketing that I have resigned myself to never understanding. The temporary nature of on-sale, incentives, and rebates. Some major companies have setup a system by which they move from sale to sale. They go by various names. Biggest sale of the year, biggest sale of the season, etc. What I don't understand from these companies is why they are incenting their customers to forgo a purchase today and 'wait for a sale.' Now I know the idea about 'making the sale an event' thereby cajoling even more than a customer would have spent and so on. However, I have also been in a store on a Friday night and the sale doesn't start until Saturday. I find myself asking. "You really don't want me to buy this now?" These same stores can't understand why a store like Wal-mart is raking in profits even in a rough economy. Well Wal-Mart operates on an everyday savings philosophy rather than a 'wait until I decide to have a sale' philosophy. Which do you think people are going to respond to in a tough economy. Additionally, when people's individual economic situation improves do you think they will flood back into your stores? Or go the fiscally prudent route and remind themselves of the valuable lessons espoused during the 'great recession.' Hint even the tv commercial about 'unused' minutes that ends 'these days we can't afford to be wasteful,' are reinforcing a mantra of frugality that will likley linger far into a recovery. Now how does all this fit into 'cash for clunkers?' Well C4C was extremely temporary. Yes, it sold 456,000 cars but all based on temporary incentives. Remove the incentives and all you have left is a sputtering economy, nearly 10% unemployment, and another two years of nearly zero sales in the auto industry. The only one buying a car in the next two years is someone who's car dies and 'has no other choice.' Of course, their is always the exception that proves the rule. Brett Favre is reported to have recently bought a new F250 after receiving his $12 million contract.
Artificial demand: The law of artificial demand is certainly in play for C4C. The government gave away $3,500-$4,500 in cash if you bought a new fuel efficient car right? Doing so prompted 456,000 sales. Think about it. That should scare the heck out of the auto industry. That's 456,000 sales otherwise 'would be sales' from 2-5 years from now. So slice these new car buyers out of your pool of 'would be buyers' from 2-5 years from now or longer. Moreover, if it takes $4,500 in free money from the government to prompt you to buy that's one otherwise purchase adverse buyer. Even further, think about those who need a new car were offered the same incentives and still decided not to purchase. That's an extremely purchase adverse buyer. Who can blame them, real or perceived this is one tough economy to be making medium term financial decisions. The problem with artificial demand is just that. It's artificial its not organic growth but is dependent on some outside variable like a temporary incentive and once removed it falls flat or worse.
Subsidy: Dare we wander into the throws of partisan bickering and a classic debate about tax policy, there is no dispute that the federal government funds expended for this program are from the taxpayers. So the only question left is how do you see it?
Potential View Point:
One may argue that the federal government has a role in regulating markets including interventions for ailing markets like the auto industry and thereby extending a rebate program to provide an extra boost is just what the doctor ordered, even if for just a little while.
Potential View Point:
Government should have no role or a very limited role in market forces. Trends and innovations should be based on responses to market demands. Taxpayer money should not be utilized to incentivize purchasing behavior in preference of one product over another.
Make Your Own View Point:
C4C was: 1) Extremely Successful 2) Successful 3) Below Expectaions 4) Extremely Wasteful
What should the Government Role be in Regulating Markets?
What is your personal tax policy?
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Eric - I thought I send you a message. Basically, I agree with most of what you said. The one variable that's very difficult is people's perceptions of what that program did. For many people it provided an opportunity to believe that the government was actually doing something more than rhetoric.
I believe it may have created a certain amount of optimism in some people. Yes, there are other factors, but people vote and believe in their pocketbooks.
There is a certain belief that we actually got a President who is doing things correctly. Cash for Clunkers stirred some optimism. And not with some of the bank loans
actually paid back with interest, I think others will assume that optimism.
I'm very Pro-Obama ... I would give
him the opportunity to prove himself, but I catch myself in a bit of a quandry. What if Obama gets more power than is good for us? Would the next President use those powers wisely? Other countries have faced this situation.
We are walking a tight-wire for a while I think.
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