Comments on: Wow, Who Would Have Predicted This?

By: markm

markm — Tue, 22 Sep 2009 02:05:28 +0000

By the program rules, all pre-existing rebates, price cuts, and other sales incentives were supposed to remain in place. Hence the manufacturers could not immediately bump the real price up to get part of the give-away. (If the program had lasted longer, they could have let limited time offers expire…)

But dealers got part of the give-away. They have never sold cars at a fixed price, instead they start with an unrealistically high list price and let the buyer haggle them down a few hundred or even a few thousand. With the government kicking in 3 grand or so more than the trade-in was worth, the dealers would know they didn’t need to give up so much to make the sale.

Of course, against that you have to figure whatever extra costs the dealers incurred in scrambling around to complete these sales in a hurry, the cost of paperwork, and the loans they have to carry while they’re waiting for the government check. Probably for months.

By: Cars4Charities

Cars4Charities — Mon, 21 Sep 2009 15:41:38 +0000

Cash for clunkers did virtually nothing for either new car sales or the environment. What it did do was take 700,000 RUNNING vehicles and destroy them. Many of these vehicles were in decent shape. As a result, used car prices have gone up sharply and much revenue has been lost by repair shops, parts stores and car donation charities.

By: hedberg

hedberg — Mon, 21 Sep 2009 05:13:35 +0000

How does the dealer get part of the subsidy? By selling the car for a higher price than the car would bring but for the c4c subsidy.

By: Don Lloyd

Don Lloyd — Mon, 21 Sep 2009 04:32:46 +0000

Mostly restating some unintended effects of the program :

1. The limited time program drives up unit demand vs inventory supply, driving up negotiated pre-subsidy market new car prices by part or all of the subsidy.

2. The market distortion destroys the signal of unit sales, leaving the automakers unable to make low risk future production decisions.

3. At the end of the program, new car prices will remain abnormally high as inventory exhaustion will keep unsubsidized prices high even in the face of reduced demand.

Regards, Don

By: Not a Chemist, but

Not a Chemist, but — Sun, 20 Sep 2009 14:38:08 +0000

Actually, Co is Cobalt. The molecule you were referring to is CO2, that is, one Carbon atom and two Oxygen atoms.

By: feeblemind

feeblemind — Sun, 20 Sep 2009 14:12:17 +0000

Via the government subsidy, the price of new cars is cut by $4500 and demand surges. Does c4c not show that cars are perhaps priced 5k too high? If the price of new cars could be reduced by that amount, would sales pick up?

By: John Hitchcock

John Hitchcock — Sun, 20 Sep 2009 05:18:24 +0000

I should point out that it would’ve been economically unwise for any dealership to opt-out of the c4c program. While opting in would make them lose money (in my belief), opting out would’ve made them lose even more money as the buyers would drive on by. And the dealerships would still face the same bad end-of-program market.

By: John Hitchcock

John Hitchcock — Sun, 20 Sep 2009 04:32:59 +0000

I don’t see any aspect of c4c intentions where it benefits dealers. Dealers will only benefit from unintended results. The primary c4c action required dealers to front the money for the government and then wait in line to get the fronted money back. The books show “accounts receivable” money from the fed. The bank accounts show huge holes where money used to be.

At best, the dealerships are missing out on interest or investment income from the money they used to front the fed. And they are less able to buy stock. At worst, the dealerships had to take out loans to front the fed, so they’re paying interest on the money they used to front the fed.

So when the fed gets around to paying, if it doesn’t disqualify, the dealerships get less than their front in return. So the dealerships lose.

Where the dealerships can get back some of their money is in the used car business. With so many perfectly resellable (sp) cars destroyed, the supply side of the supply-and-demand curve has shrunk, so the demand side will have to pay a higher premium for the lower supply. So dealers who bought used cars before c4c will be able to mark up the prices on those used cars now that c4c is over.

And that means the consumer base as a whole loses out on the c4c deal.

So, the consumers lose, the taxpayers lose, the dealerships lose, the manufacturers break even at best, and big sugar daddy gains or saves a few votes.

By: Tim

Tim — Sun, 20 Sep 2009 03:20:43 +0000

There are a couple of thoughts to the falling SAAR. One is that dealer inventories are at an all time low; actually under optimum. So people who want to take delivery out of stock, rather than wait for one to be built, defer their purchase. Another is the pull ahead, those people who made purchases earlier than planned. Last are the people who are holding out — waiting for the next round of scrappage.

As a side note, Edmond’s has an interesting analysis of cash for clunkers. It turns out that the government gamed the sales figures; counting each drivetrain variant under the same model separately. For example, the 2wd Escape 4wd Escape sales were counted as different nameplates. The same applied for different engine displacements. Nobody has *ever* counted this way in the industry, ever.

Why does this matter? Here’s the DOTs top 5 trade ins: Corolla, Civic, Camry, Focus (FWD), Elantra. Here’s Edmond’s top 5 trade ins: Focus, Escape, Civic, F150(!), Corolla. Coming in at #8 was the Chevy Silverado 1500(!).

And, somehow, the Government can’t add. The DOT got 690,114 applications, scrapped 685,201 vehicles under the program, and claims that 684,941 vehicles were purchased under the program.

See http://www.autoobserver.com/2009/09/new-math-cash-for-clunkers-numbers-dont-add-up.html for the details.

By: Mike Walsh

Mike Walsh — Sun, 20 Sep 2009 02:45:29 +0000

@hedberg:

There’s another beneficiary that was intended: state sales tax revenues….