No Runny Eggs

The repository of one hard-boiled egg from the south suburbs of Milwaukee, Wisconsin (and the occassional guest-blogger). The ramblings within may or may not offend, shock and awe you, but they are what I (or my guest-bloggers) think.

What can we learn from CARS, Part II

by @ 11:47 on August 1, 2009. Filed under Business, Politics - National.

Yesterday, Shoebox explored the early drain of the “Cash for Clunkers” program. Allow me to take it a slightly-different direction.

Last week, Edmunds estimated that car/light truck sales for July would be roughly 950,000. Given that the “Cash for Clunkers” program was designed to get 250,000 new cars into the hands of those that were driving “clunkers”, does anybody really believe that one out of every four car sales this month involves a vehicle traded in surrendered to the government shredding machine that would both qualify for the program and make economic sense?

Related to that, I wonder how many people are going to flip their new cars and buy something they really want. Prime example – you’re ready to move up from a 1996 Honda Passport EX 4WD (private-party value of $1,817, trade-in value of $1,194; all numbers from Edmunds and, other than a mileage adjustment for the Aveo5 trade-in, unadjusted) for a 2004 Honda Pilot EX (private-party value of $12,886, dealer-retail value of $13,914). Normally, if you’d go through the dealer process, you’d have to come up with, before tax/title/etc., $12,730.

Thanks to the “Cash for Clunkers” deal, there’s a money-saving way to do that. First, you walk into a Chevrolet dealer, divest yourself of the Passport, and pick up a new 2009 Chevrolet Aveo5 1LT (MSRP $14,820, “True-Market Value” price of $14,315, less an existing $1,000 rebate makes it about $13,315 before the $4,500 “Cash for Clunkers” credit). That means, again before tax/title/etc. (which is a bit more this time in most states because they add more fees to new-car transactions), you’re ponying up $8,815. You then drive to the used-car dealer with that 2004 Honda Pilot EX, give your $11,010 for trading in the Aveo and $2,904 in cash (plus tax/title again) to the dealer, and drive out with the Pilot. Thanks to the bipartisan Party-In-Government and us the suck…er, taxpayers, you’re paying roughly $1,000 less for that two-step transaction than you would otherwise have paid. It just gets worse for the taxpayer if you’re willing to do the second part yourself rather than going through the dealer.

Exit question that I’m sure nobody in the House bothered to ask before they authorized another $2 billion to be thrown down this hole – what’s going to happen in a few months when a lot of these people stop making their monthly payments? After all, there is a reason why they were driving “clunkers” rather than buying a nice $10,000 used car – they couldn’t afford even that.

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