Clunker Rent Seeking

I thought this was pretty illuminating, from Tim Carney via Hit and Run.  He is writing about lobbying efforts for and against an extension of cash for clunkers:

One lobbyist for this bill was Nucor Steel. In Cayuga County, N.Y., Nucor turns scrap steel into sheet metal and other steel products. The clunkers are now becoming a subsidized feedstock for Nucor, which helps explain why Sen. Chuck Schumer, D-N.Y., has led the push for $2 billion extra in clunker cash.

Then there's Enterprise Rent-a-Car also backing the bill, supposedly out of solidarity with automakers. But Enterprise sells its rental cars after a few years. As a rental firm that buys its cars new, Enterprise benefits every time someone else scraps a used car.

On the other side of the lobbying debate were non-dealer auto-repair shops, whose businesses depend on used or older cars, which the owners don't take to the dealer for repair. Also, the Automotive Aftermarket Industry Association opposed the bill.

These are the guys who can sell you the headlight for your 1998 Ford Taurus, or who rebuild an engine out of a junked car.

Shredding old cars saps both their clientele and their supply of old transmissions to rebuild.

  • Fred Z

    Has anyone analyzed how much parties inventories for the old cars will be devalued? Lots I'll bet.

  • Ken

    Bastiat wins again, not that he's very happy about it.

  • Tim

    The most ironic thing about Cash for Clunkers is that it is ultimately bad for the industry.

    First, all incentives simply pull ahead sales from a future time frame to the 'deal period'. At some point, the turn-ins would have to be replaced; but by essentially marking down the price, those future sales are pulled forward. This enhances the cyclical nature of vehicle sales.

    Second, sales that are not pulled ahead are deferred. There is some analysis that shows that people delayed new vehicle purchases waiting for this government program to start, and anybody who doesn't get in on the deal will probably sit on the sidelines waiting for another round of cash-for-clunkers. The case study here is the 0% interest rates that GM started after Sept 11th.

    Lastly; sales, cashbacks and incentives alter the nature of new car sales. It becomes less about the aspirational nature of the product and more about the 'deal'. In essence, this kind of deal turns cars into appliances; which is bad for their residual value and for the brand.

    Essentially, the owners of the new GM and new Chrysler need to learn the same hard lesson, the hard way, that the old GM and old Chrysler learned -- incentive based sales become a race to the bottom.

  • Tim Fowler

    Coyote, your link with the text "Tim Carney via Hit and Run" doesn't work.