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Cash for Clunkers Hurting the Lower Income

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    Cash for Clunkers Hurting the Lower Income


    Is Obama's 'Cash for Clunkers' program to blame for the dramatic rise in used-car prices?



    The auto world was cheered by yesterday's news that new-car demand continues to increase, with several major automakers reporting higher sales compared to a year ago. But as new-car prices rise, buyers aren't going to find as much relief as usual buying used cars.


    Used-car prices are up 16% from a year ago, better than three times the usual 4.6% annual increase, Edmunds.com reports. The reason is simple supply and demand. With fewer new cars being sold, dealers are getting fewer trade ins. Also, rental car and government fleets have dramatically reduced their new-car purchases, a prime source of fresh used cars when they are cast out after a year or two of service. But it appears that Cash for Clunkers may also have played a role in boosting prices out of reach of many Americans who need cheap, reliable transportation to weather high unemployment and a weak economy.

    The government "Cash for Clunkers" program's provision that all the 678,024 gas guzzlers brought in to be traded for new vehicles be destroyed could be another key factor. Edmunds notes that the highest used-car price appreciation has come in some of the cars that were the biggest targets of the clunkers program -- pickup trucks, up 26.2% and mid-size SUVs, up 25.4%. Even the prices of used minivans -- a segment that many believe is out of fashion now that there are so many crossover choices -- were up 27.1%. By contrast, compact car prices rose only 13.5% and midsize car prices fell a tiny bit. It already has been an expensive outing for taxpayers:

    The program, which cost nearly $3 billion in taxpayer funds, gave incentives of up to $4,500 for people who traded in old, inefficient vehicles for gas-thrifty new ones.

    Used-car dealers predicted just this scenario when they were griping over the summer about the provision of the law that required cars turned in to be destroyed, many with relatively low miles on the odometer. "It's going to drive prices up of some of the most affordable vehicles we have on the road," said Kelley Blue Book analyst Alec Gutierrez at the time. And that hurts the families most desperate for cheap, reliable transportation. "Those are the cars that lower-income families need," says Geoff Smartt, owner of Smartt Cars in Caldwell, Ida., when we interviewed him in August.

    As a stimulus program, clunkers seemed popular for its transparency and among people who got a new car at a government's subsidize discount and for local car dealers who badly needed a sale. But higher used-car prices could be its legacy.
    I think one of the readers comments says it best, so I will just quote them

    the poor got screwed with this whole program. They couldn't afford to spend $45,000 to get the $4500 "rebate", the used cars they might have purchased were destroyed. This was a sham from the beginning.
    “Democratic Math”:


    If you traded in a clunker worth $3500, you get $4500 off for an apparent "savings" of $1000.

    However, you have to pay taxes on the $4500 come April 15th (something that no auto dealer will tell you). If you are in the 30% tax bracket, you will pay $1350 on that $4500.

    So, rather than save $1000, you actually pay an extra $350 to the feds. In addition, you traded in a car that was most likely paid for. Now you have 4 or 5 years of payments on a car that you did not need, that was costing you less to run than the payments that you will now be making.

    But wait, it gets even better: you also got ripped off by the dealer.
    For example, every dealer here in LA was selling the Ford Focus with all the goodies including A/C, auto transmission, power windows, etc for $12,500 the month before the "cash for clunkers" program started.

    When "cash for clunkers" came along, they stopped discounting them and instead sold them at the list price of $15,500. So, you paid $3000 more than you would have the month before. (Honda, Toyota, and Kia played the same list price game that Ford and Chevy did).

    So lets do the final tally here:

    You traded in a car worth: $3500
    You got a discount of: $4500
    ---------
    Net so far +$1000
    But you have to pay: $1350 in taxes on the $4500
    --------
    Net so far: -$350
    And you paid: $3000 more than the car was selling for the month before
    ----------
    Net -$3350

    We could also add in the additional taxes (sales tax, state tax, etc.) on the extra $3000 that you paid for the car, along with the 5 years of interest on the car loan but lets just stop here.

    So who actually made out on the deal? The feds collected taxes on the car along with taxes on the $4500 they "gave" you. The car dealers made an extra $3000 or more on every car they sold along with the kickbacks from the manufacturers and the loan companies. The manufacturers got to dump lots of cars they could not give away the month before. And the poor stupid consumer got saddled with even more debt that they cannot afford.

    Obama and his band of merry men convinced Joe consumer that he was getting $4500 in "free" money from the "government" when in fact Joe was giving away his $3500 car and paying an additional $3350 for the privilege!
    Now lets all gather around the campfire and start smoking our HOPIUM!
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    Does anyone else see the irony in the fact that Ford just announced a large profit last quarter and they ae the ones that didn't take govt money.

    Coincidence? I think not!
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    Quote Originally Posted by youngandfree View Post
    Does anyone else see the irony in the fact that Ford just announced a large profit last quarter and they ae the ones that didn't take govt money.

    Coincidence? I think not!
    I as well as many other people with principles now will actually only buy ford. We bought a Fusion, and love the hell out of that car.
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    Quote Originally Posted by DAdams91982 View Post
    I as well as many other people with principles now will actually only buy ford. We bought a Fusion, and love the hell out of that car.
    Me too! Excellent car.

    I've always bought American cars, and always will, but the selection is narrowed down to Ford cars from now on.

    After spending the summer up in Michigan and seeing what the loss of manufacturing jobs has done to their economy, I could never buy a foreign car.
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    Quote Originally Posted by iron fists View Post
    But the loss of manufacturing in the american car builders isnt because of forign car makers...it was the workers(especially GM) and there damn labor union that caused the amercian car makers to fail....seriously,,, 20.00 an more per hour just to trun a screw ot tighten a clamp, with no college education or years of mechanical school. Those workers had it ****ed, and they are the ones that should be responsible and should stand up and take the blame, not outsourcing....unions have long been the locomative behind our countries manufacturing decline,,,,if you did your job right, stayed drug free, and actually worked, then no one would need a union because they are PERFORMING! unions pay tons of money for tenior, but not performance. Give me a break, as long as there are unions the more we will outsource and the more jobs lost, unions lower productivity, quality and encourage laziness and mediocresy. They basically want to be paid jus for showing up. In my city dayton, which is huge gm town, we have the only gm diesel engine factory, duramax diesle *(Dmax). They turned downed 18.00 starting pay from the japs because they wanted a union there, so they took 10.00 and hour so they can have there union. I worked there for 1.5 years and I had to quit because it made me sick. Unions are just another form of welfare. And gm has even been reported as to not ever goint ot pay back the bailout money. But we keep bailing them out and paying there unemployment....theyt wont go work because they make more on unemployment. a trucking company in town has reported that all of the cities free grants for displaced workers to go school got used up by all the gm workers who went and got their cdls. They only did that becasue it was the easuest degree to get, and they had to go to school to recieve full uneployment for the 60+ weeks, and when they are called for a job that the school found for them, they replied they dnt want to work because there unemployment pays more and they just went there to keep it. And its on record . So know that school has lost its gvt funding because there job placement rate went from 99% to below 50% because of those lazy ass union gm workers. So dnt ever blame the foriegn marker for our mistakes of our society....and by no means am i an advocate for foreign markets over Us. I just wish people would see through the bull and realize that GM did it to themselves, and if they had not failed then there would have been no campaign for a stimulus/ debt multiplyng bill.
    While there are pros and cons to unions, it wasn't necessarily the $20 an hour for turning a screwdriver that did them in. It was the overly generous pensions and skyrocketing health care costs that made the Big 3 automakers uncompetitive with the foreign carmakers. Just paying the pensions and health care costs of retired workers was adding thousands to the costs of cars, so the only way they could make a profit was to sell big, expensive SUVs and trucks. When gas prices hit record levels and people started buying the small cars, the big 3 couldn't compete.

    Look at Toyota - even at their America plants, they aren't paying for more handful of pensions because they haven't had plants here long enough. However, as more and more of their workers retire, they'll start to suffer a bit, although never as much as the big 3.

    Now, Ford managed to make a profit this quarter because most of their employees decided to take paycuts rather than be laid off. Plus, their Ford Fusion has actually jumped into the top 10 sellers list in America.

    I do agree about several points about unions. I've always dealt with them from a management point of view and I know that they're obsessed with tenure, but at the same time if you know the union rules inside and out, you can beat the union at their game.
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    Lets not forget that it only resulted in around a 20% increase over prior month. Which means that 4 out of the 5 "clunkers" would have been traded in anyhow, which means the taxpayers subsidized each "real" additional purchase to the tune of over $22k
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