Tax Giveaways Succeed in Borrowing More Demand from the Future

Congress agreed to pour an additional $2,000,000,000 into the cash credit toward an overpriced new car for clunkers program this week, with various pundits praising the program as a rousing success. Meanwhile, industry professionals point to the $8,000 tax credit for first-time homebuyers as a major factor behind the recent increase in home sales.

One thing you don’t hear many people talking about with these “successful” programs is where are all these buyers coming from?

The people buying cars and houses because of these programs are almost certainly not individuals that were previously not in the market for a new house or car to begin with. Neither the $8,000 first-time homebuyer tax credit nor the $3,500-$4,500 would make any sense as a strictly financial proposition for someone who was not previously interested in buying.

As we have discussed on these pages before, an $8,000 credit is barely over 2% of the price of the median King County home. The chance that comparable homes will be more than 2% cheaper next year is extremely high at this point, meaning it is a better value proposition for the first-time buyer to wait for prices to fall on their own much more than the piddly $8,000 of your money the government is offering to give back to you.

As far as $4,500 toward a new car goes, most people buying into this program would probably save far more money by either buying a 2 or 3-year-old car or simply keeping their so-called “clunker.” This is especially true in light of the reports of widespread dealer mark-ups of cars since this program began, in amounts that are suspiciously close to the “CARS” rebate amount (e.g. – a car that was being offered for $20,000 three weeks ago now has a sticker price of $24,500).

So if they’re not being pulled completely off the sidelines into the new car and new home markets by these tax giveaways, where are the people taking advantage of these programs coming from?

My theory: All the government is succeeding in doing with these programs is to borrow even more demand from the future.

This is exactly what caused real estate demand (i.e. sales) to spike so high during the heyday of the real estate bubble: low interest rates and lending with fog-a-mirror standards drew buyers out of the woodwork—buyers that otherwise would have waited a few years until they were in a better financial position to take on the responsibility of a massive mortgage.

The same thing happened with demand for cars. People were withdrawing equity from their homes at never-before-seen levels and spending it on cars, TVs, and vacations. Dealers were offering 0% here and no-payments-for-36-months there, driving people who would have otherwise made do with their perfectly good car to trade it in for a brand new ride that they didn’t really need.

Today’s sagging demand for houses and cars is merely the demand debt from the boom years being paid back. Of course, debt repayment is never enjoyable, and big daddy government seems hell-bent on doing whatever it takes to prevent individuals, corporations, and the government itself from having to feel the inevitable pain.

So what do we do? We create nonsense tax credit programs to borrow even more demand from the future, compacting thousands of sales that would have taken place spread out over the next year or two into just a couple of weeks or months.

Does anyone truly believe that this path is sustainable, or are our politicians merely attempting to delay the real fallout of this mess until they have secured their own personal fortunes and pushed through their pet projects and agendas?

We cannot keep borrowing demand (or money) from the future forever. Eventually the bill comes due.

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

119 comments:

  1. 1
    dydx says:

    On “continuing to borrow future demand”: very well said indeed.

  2. 2
    Kary L. Krismer says:

    I think the claim future demand is being diverted is especially appropriate on cars. People tend to only let their cars get so old before they replace them, so eventually the demand for cars would have returned.

    In contrast, houses are not a cyclical purchase of necessity, and I think the goal there was more price support–to prevent a market over-reaction.

    In both cases, however, the party helped probably wasn’t the purchaser. It was the seller.

  3. 3
    AMS says:

    The Tim-

    I am one of the people who purchased a new vehicle under the CARS program. I would not have purchased the vehicle without the $4,500 Obama credit. The deal was so good that I could not refuse. I live down in Oregon, the land of no sales tax, so let’s get that out of the way right away.

    My new 2009 Pontiac Vibe (Toyota Matrix) is a 1.8l with a combined rating of 28. My “clunker” had a combined 18. The vehicle is equipped with Remote Keyless Entry, power door locks, power windows and cruise control, air conditioning, and an automatic transmission.

    By the time all the factory incentives, CARS rebate, dealer document fees, the 4-year registration, and so on were applied, the cash needed was $9,500.

    My tires were bald on the trade in. Before the cash for clunkers deal, I took the trade in for a front-end alignment. The estimate was over $1,400 (ball joints, struts, and so on.). Then there were other problems with the vehicle.

    Yes, I did go down in power. Yes, I did go down in size. Yes, I am driving a new car, with a factory warranty, for under $10,000.

    Did my purchase pull demand from the future? No. I would have never purchased a new vehicle without the incentive.

    I do, however, wonder about the quantity of available cars for those people that are in that market. With a short supply, prices should increase.

    The bigger question, however, is if this is a good government program. Americans are paying $1B to crush ‘clunkers.’ Reminds me of China’s Great Leap Forward where good metals products were destroyed.

  4. 4
    What The Heck says:

    Just a thought – Isn’t there some velocity of money (I’m not an economist) created by the purchase. Maybe someone in the car business and/or with an econ background can fill in the blanks or shoot some holes my numbers below. State/City is benefitting along with the Fed to some degree. Didn’t include many other things such as autoworker’s wage, maintenance and extended warranty contracts, bank profits from financing, dealership finance profits, etc.

    4000 Clunker Credit

    30000 sales tax @ 8% = $2400

    Dealer Profit of 1500 taxed at 30% = $450

    Fed Tax on salesman’s commission of 300 @ 20% = $60

    License fees = $45

    Total fees and taxes generated $2955.00

    Just tyring to be a little optomistic about my tax dollars not being a total waste on the program.

  5. 5
    jon says:

    Neither program is intended to help the buyer. Buyer’s already have plenty of chances to buy at great prices right now. In the case of Clunkers, it is to get auto companies through the downturn without completely collapsing. People are deferring car purchases, and so there will be a rush on cars once things recover. They are leveling out the demand back closer to a more normal steady flow. Houses are a little different because new home construction is not the goal, but the aim there is to help the lenders by getting people to buy foreclosed properties and so help to get those houses back to generating income. People who bought too much house also get a bit more chance to get out before they fall behind in their payments, thus avoiding the hit of another foreclosure on the lenders.

  6. 6
    cheapseats says:

    “I do, however, wonder about the quantity of available cars for those people that are in that market. With a short supply, prices should increase.”

    I would be surprised if this was enough to burn off the excess inventory. I remember seeing (on here I think) the backlog of boats and parking lots full of cars with no where to go…

  7. 7
    per_se says:

    I’ll have to disagree with some of your assumptions on the program Tim. First, borrowing demand from the future is the whole point of stimulus spending. Affecting demand in the present to smooth the business cycle is the goal of economic policy. As compared to housing it’s not as though that demand is being used to prolong a pricing bubble.

    Secondly, there is a secondary benefit to the program to increase fuel efficiency of cars. If there was no program then those old cars would be on the road wtih 10MPG less. This is similar to the tax credit for hybrids. How many people already in the market would have gotten the more fuel efficient car if it weren’t for this program?

    Third, spending the same money on 2-3 year old cars does not help the economy as much as buying new products. It’s financially prudent for the person but those used cars are already built. Only the used car dealer is making money vs a new car where manufacturing jobs are directly affected and the money used counts toward GDP.

    The complaint I see in the program is that they did not stipulate it was for only domestic cars because that would have an even greater effect on the economy.

  8. 8
    Kary L. Krismer says:

    By per_se @ 7:

    The complaint I see in the program is that they did not stipulate it was for only domestic cars because that would have an even greater effect on the economy.

    I think that would likely violate various trade treaties, and in any case, many/most cars that would qualify for the credit would be made here even if they’re “Japanese.”

  9. 9
    AMS says:

    RE: cheapseats @ 6

    The cars being traded in are at the bottom end. I don’t doubt there are plenty of vehicles in the over $5,000 category. And I am making the assumption that no one trades in a $6,500 vehicle for $3,500 or $4,500, plus scrap value.

  10. 10
    AMS says:

    RE: Kary L. Krismer @ 8

    Most of the cars being purchased under the program are assembled in the United States. The mix of parts is yet another question.

    My Pontiac Vibe (same car as the Toyota Matrix) was assembled in Fremont, CA. The part mix is 61% North American and 39% Japanese.

    Since the Vibe and the Matrix are the same vehicles, excepting the wrapper, built with the same parts and workers, the question is what differences are there between purchasing the Toyota versus Pontiac?

  11. 11
    alex says:

    [TheTim]: Neither the $8,000 first-time homebuyer tax credit nor the $3,500-$4,500 would make any sense as a strictly financial proposition for someone who was not previously interested in buying

    That’s the fact that keeps hitting us in the face over and over again… people don’t do things because it makes sense…

  12. 12
    Softwarengineer says:

    RE: AMS @ 3

    Speaking of China, When They Have a Stimulus, Its “Buy Chinese” Only in the Bill

    When we have a tax credit most of its debt to our grandkids to Toyota, Hyundai, etc…I heard this on FOX.

    CNN and CNBC praises the cash for clunkers, but doesn’t bring out the foreign deficit conundrum, but that’s become politically incorrect like scientific demography analysis of the environment and population.

    After all, rocket scientists are all Frankensteins?

    I am glad you got a decent deal though, but agree with Tim….I bet most didn’t.

  13. 13
    Softwarengineer says:

    RE: per_se @ 7

    Some to our GDP

    Most to foreign countries’ GDP.

  14. 14
    Softwarengineer says:

    RE: AMS @ 10

    All foreign automobile plants in America use mostly non-union factory labor only

    Where’s almost all the higher paid professional college automotive engineering, MBA, etc. jobs? In Europe, Japan and South Korea at their headquarters.

    And if you don’t think wages will totally deteriorate at these foreign assembly plants in America when/if the Big Three UAW disappears or slow way down….you’re completely naive. Also, these American assembly plants will be the first to go if the current foreign auto plants slow down doesn’t fix itself….Japanese car sales to America are already down 71%, be prepared for mass factory closing in America. Their mother country plants will be the last they’ll close.

  15. 15
    demo kid says:

    Another issue is that used cars are being diverted from the stock of available cars for sale in the fleet. If that $4,500 credit is being given for cars that are worth less than that AND those very low-end cars are being scrapped, the total supply of used cars is going to take a beating while used car dealers get shafted while people go off and buy new cars. When the CARS program ends, though, and demand for used cars picks up a little again, the supply of used cars is going to be tight and prices are going to inflate while prices for new cars starts to decline from a large drop in demand.

    Either way… used car dealers are really going to get shafted, as are folks on the low end of the auto market that need “clunkers” to get around.

  16. 16
    AMS says:

    RE: Softwarengineer @ 12

    I have to admit that I shopped by price and quality. I looked for factory rebates and other incentives. My goal was to buy a quality vehicle for under $10k. The Pontiac G3/Chevy Aveo was far less money, but it is far less of a vehicle, in my opinion. The sticker price of my Vibe is $19,480. In other words, I purchased at 50% off, but I had to give up my old vehicle, which wasn’t much.

    Would I do it over? I have only owned the vehicle one week, but I am very satisfied with the deal.

    Oh, I do have another ‘clunker’ that qualifies, but it is one per person. I’d actually buy another one, if I could get the $4,500 out of the second ‘clunker.’

    Just for fun, check this auction out:

    http://cgi.ebay.com/ebaymotors/ws/eBayISAPI.dll?ViewItem&item=330350291875

    (Summary: Guy buys 2009 Cobalt. Suggests, “We purchased this as a cash for clunkers and actually don’t need it. We drove it home and parked it.” Now wants to “share the $3,500” with you.)

  17. 17
    demo kid says:

    I should add that I’m an unrepentant and unflinching Keynesian when it’s done in the RIGHT way. Borrowing future demand to dampen economic cycles is a good thing when done properly, as bubbles and bursts aren’t desirable. However, if the government didn’t have the will to step in and mitigate the overheated housing market when things were rolling, it sure as hell shouldn’t prop up the market on the downswing. Halfway Keynesianism is dangerous for exactly the reasons you state.

  18. 18
    AMS says:

    RE: Softwarengineer @ 14

    Take a look at GM’s newest plant: Delta Township, Lansing, Michigan. The Union agreed to exclude the workers from the standard, and higher, established wages. The Buick Enclave is built there, and demand is very strong for these $40k-$50k vehicles, yet they are assembled with very few workers making far less than similar union workers at other assembly plants. I am not sure, but I would bet the Grand River Plant, Lansing, Michigan, which is another newer plant, also uses the lower paid workers.

    I am not sure what the workers are paid at the Fremont, California Toyota/GM Joint venture plant.

  19. 19
    AMS says:

    RE: demo kid @ 17

    At what point are Americans living beyond their means? With rents so cheap relative to purchase prices, there is no way, in my opinion, that this bubble could have been averted. It was not a question of if, but rather it was simply a question of when.

    I have also suggested that at the root of the problem is the aging of baby boomers. For various reasons, and I don’t have good solid data to support this, baby boomers were dumping large sums of money into so-called safe mortgage based obligations. My theory, simply put, is that 15 to 20 years ago boomers viewed retirement as getting too close for comfort, and they were at a point where they had extra funds to invest. At the same time under Greenspan interest rates were very low. Banks were paying essentially zero. Thus boomers sought better opportunities, and one place was in housing. It was viewed as completely safe, essentially risk-free.

    Fast forward to today, and boomers are now exiting the saving phase and entering a retirement/consumption phase. This attempt to extract money out of the housing market has created a shortage of cash (deflation by monetarist standards). If this is true, what can solve the problem? Note how this relates to the question of Americans living beyond their means.

    Also I don’t think it is any coincidence that many retirement funds are having problems as boomers retire en masse.

  20. 20
    Markor says:

    A friend of mine who drives vehicles that were clunkers he repaired laments the good parts that are being destroyed. He lives close to work and otherwise drives little, so higher fuel economy in exchange for $$$ is a waste for him.

    Seems most people expect the economy to recover, at least to something significantly better than we have. No guarantee on that. Overpopulation has been straining to give for a long time, so it could be giving now, permanently. (I’m reminded of that whenever I see a sorry picture in the news–I’m supposed to feel sorry anyway–of a family of six where one or both parents have been laid off.) If so, these gov’t incentives are just going to hurt future citizens worse, and may do so in any case. With each new lunacy I feel compelled to delay retirement longer to compensate my child for my generation’s excesses. It’s extremely unlikely that my child’s generation will have the same luxury of being able to borrow their way out of their problems.

    I don’t have an issue with gov’t borrowing demand from the future, when society has lent demand from the future. That was the case during the New Deal, for example. Currently it’s possible, or even probable, that society has relinquished future demand, never to return. Case in point for housing is McMansions in exurbs; there may be an oversupply of them forevermore. Like AMS, the destruction of clunkers also reminds me of China’s Great Leap Forward, that lead to their Great Famine.

  21. 21
    Kary L. Krismer says:

    By AMS @ 16:

    I have to admit that I shopped by price and quality.

    That’s a damming [mis-spelled on purpose]admission. Next you’re going to tell us you help little old ladies across the street! ;-)

  22. 22
    AMS says:

    Take a look at Craigslist for cars in the $500 to $2,500 range. The pickings are pretty slim! It looks like it is time to sell my other ‘clunker.’ I don’t need the backup vehicle now that I have the new-car warranty.

    Kary-

    Do you need help crossing the street?

  23. 23
    Markor says:

    RE: AMS @ 16

    Just for fun, check this auction out:

    http://cgi.ebay.com/ebaymotors/ws/eBayISAPI.dll?ViewItem&item=330350291875

    (Summary: Guy buys 2009 Cobalt. Suggests, “We purchased this as a cash for clunkers and actually don’t need it. We drove it home and parked it.” Now wants to “share the $3,500″ with you.)

    Too bad for them the car dropped $3,500 in value when it was driven off the lot!

  24. 24
    The Tim says:

    The environmental “benefits” of the “CARS” program are a total farce. If this program were designed to benefit the environment they would be giving even more money to people to give up their cars for a bicycle, or people who give up their cars entirely. Instead, people that take such actions that truly benefit the environment get zero, nada, zilch.

    Meanwhile, perfectly usable cars are being destroyed, along with all the spare parts that could have been reused to keep other vehicles running. Now all the demand for said replacement parts and vehicles that would have been satisfied by the “clunkers” that are being destroyed must be met with additional production of new goods, which use additional resources and produce additional pollution.

    Sounds super environmentally friendly to me. Not.

  25. 25
    Markor says:

    Also Tim, extra money flowing into the economy will be partially used to pollute or buy something that isn’t needed, just as it did for housing. For example, a car dealer who was pinching pennies may now be in the market for a Hummer (which can qualify for the clunkers program too, BTW, as the new vehicle).

  26. 26
    AMS says:

    The Tim-

    What about the safety factor? I have a friend who suggests that the safety factor is worth the cost. In other words, $1B in public good will be realized by the increase in safety. The suggestion is that new cars are safer and that getting bigger vehicles off the street will help reduce injuries to occupants in smaller vehicles.

    I went from a vehicle that had an empty weight of about 4,200 pounds to one that has an empty weight of about 2,900.

    Also there is no doubt in my mind that the emissions are better with the new vehicle. That’s not saying my old vehicle had bad emissions, but I am suggesting that the new vehicle is better–we all will be breathing cleaner air. My old vehicle did pass the required Washington State emissions test (tailpipe test). If nothing else, the new vehicle has a warranty that covers the emission related components, so if there is a problem, owners are very likely to have it fixed sooner rather than later.

  27. 27
    Kary L. Krismer says:

    RE: AMS @ 26 – That’s about the one thing that would help.

    The only thing I don’t like about my 20 year old pickup truck is no air bag, and even if it had them, I would guess they would malfunction after 20 years. Also, while it has anti-lock brakes, the technology for anti-lock on 4×4 vehicles has really improved in 20 years.

  28. 28
    Markor says:

    RE: AMS @ 26

    I went from a vehicle that had an empty weight of about 4,200 pounds to one that has an empty weight of about 2,900.

    Safer for others, but less safe for you. Isn’t that a wash? Nah, I know it’s for the greater good, but I’ll still have a hard time giving up my extra mass as long as SUVs with texting drivers abound.

  29. 29
    per_se says:

    RE: The Tim @ 24

    There is a difference between perfect and beneficial. A quarter million cars that now have 10MPG better fuel economy. I’m pretty sure that does help the environment. I can respect the fact that they created a stimulus program that had secondary benefits environmentally as well.

    The argument about the parts i can’t totally agree with. These are all old cars, do you think there is a shortage of parts in junkyards for these models? I don’t think there is, so it’s not like someone looking for parts won’t be able to find replacements from old cars. Stripping the cars for parts so they can sit on shelves and take up space not to be used is a waste also. And what percentage of drive-train parts come from old cars? I think a lot of people end up buying new parts anyway. I can make an argument that there is an immediate benefit because the cars are being scrapped for metal and recycled and that immediately goes back into the production cycle.

    I just don’t think you can say that this whole program is a farce environmentally. Leaving aside whether you think Keynesian economics is sound in terms of dampening the business cycles and borrowing demand, as far as a stimulus program I think this one actually was put together fairly well because it provides immediate impact to the economy and has some secondary benefits, like the environment, that ar beneficial.

  30. 30
    patient says:

    I really despise the $8k tax credit. Mostly since it’s a deception of value aimed at making people irrational and overpay with huge debt for a declining commodity. I do however like cash for clunkers mostly of the reason raised by AMS. Safety. Many drivers of clunkers are teenagers and young parents. Most clunkers do not have features as latch system for child seats, the latch system makes it far less likely that child seats are not properly anchored. Many clunkers have poor breaks and worn tires and the list just goes on. I can’t wait to see many of tehse road hazards being off the streets forever. And no I don’t have any clunker myself but i’m ok with paying for it.

  31. 31
    AMS says:

    RE: Markor @ 28

    By eliminating the larger vehicle, the net is safer for all. The basic idea is that multiple minor injuries are a much less significant impact than a single major injury.

    Also we need to consider single vehicle accidents. New vehicles are involved in a lower rate of single vehicle accidents. Features such as traction control, lower center of gravity, and so on help eliminate the chances and impacts of single vehicle accidents.

    While this area is not a corrosion prone area, the structural integrity of older vehicles is always a question in the areas where corrosion is a big problem.

  32. 32
    AMS says:

    RE: per_se @ 29

    “A quarter million cars that now have 10MPG better fuel economy. I’m pretty sure that does help the environment.”

    Not exactly.

    The improvement could be as low as 4MPG, and there is no upper cap. It will be interesting to see what the actual average improvement is.

  33. 33
    Markor says:

    RE: per_se @ 29

    Those are good points. I bet they’re all swamped, though, by the cascading buying power the incentive brings. People from the dealer and down the line will use the newfound money to consume & pollute more. The best thing for the environment would be if Americans were a lot poorer. An extra tax whose revenue was used to pay down national debt would have a greater positive effect on the environment, methinks.

  34. 34
    The Tim says:

    RE: AMS @ 26, per_se @ 29 – I’m not saying the program has no redeeming qualities. I am just unconvinced that the redeeming qualities outweigh the negative ones.

  35. 35
    AMS says:

    RE: Markor @ 33

    Additional consumption will only hold if we held the total cost of ownership equal. For many people, there will be a new car payment, which will reduce the likelihood that additional miles will be driven. In general, driving a new vehicle is MORE EXPENSIVE than driving a ‘clunker,’ even if the new vehicle does get improved fuel economy.

    In other words, we cannot have it both ways here.

    On the one hand there are claims that people should not buy the new vehicle because of the net increase in ownership costs. On the other hand we have people, who like yourself, suggest that additional miles will be driven because of all the savings.

    Thus we have some people claiming there will be extra money after the purchase of a new vehicle and others who suggest there will be less money. Even if the total cost of ownership were the same, the extra miles would have to exactly match the increase in fuel efficiency.

    If a person can drive more for the same cost, it would seem that is a good move for the consumer. If they drive the same amount, then their costs will be equal or less than their former costs.

  36. 36
    AMS says:

    RE: The Tim @ 34

    A friend overseas summed it up with one short question:

    “Americans are paying $1B to buy clunkers to crush?”

    Oh, and I should add:

    I said to my car salesman, “Thank you for paying your taxes; I will enjoy driving my new car.”

  37. 37
    Markor says:

    RE: AMS @ 31

    By eliminating the larger vehicle, the net is safer for all.

    Agreed, all else being the same. However, I doubt it would be better for safety if everyone drove the smallest cars, unless they drove slower. Perhaps the net safest way to go, given 70 mph speed limits, is for everyone to drive larger cars (like mine, 2 tons) with the latest safety features.

  38. 38
    98115_Renter says:

    The Tim:

    I personally am most impressed with your statistical presentation and analysis of RE data, and less so with your opinion pieces about stimulus and the car rebate system.

  39. 39
    98115_Renter says:

    RE: Markor @ 37

    Actually smaller cars are significantly more maneuverable and have a much shorter braking distance.

  40. 40
    per_se says:

    RE: AMS @ 32

    The 10 MPG (9.8 exactly I think) is the current average of the difference being reported between the traded in cars and the new cars.

  41. 41
    AMS says:

    RE: Markor @ 37

    I don’t know. The NASCAR vehicles, ~3,500 lbs, have a good safety record, and they go far beyond 70 mph.

    I guess the question is: Would we be safer, on a public policy basis, with larger vehicles or smaller vehicles?

  42. 42
    Sara says:

    RE: The Tim @ 24 – Here, Here! In housing they say the ‘greenest’ building is in rehabbing/reusing old houses and building materials. I cant see how destroying cars that still run and get people to work could be environmentally friendly. How much oil does it take to manufacture a new car? And don’t forget Click and Clack have always said it is cheapest in the long run to drive a ‘clunker’

  43. 43
    Markor says:

    RE: AMS @ 35

    I’m thinking less of the car buyer (because as you show that’s complicated equation) than I am of the people down the line from the purchase. There’s some economic term for it, no doubt, where money paid to one person (in this case the dealer) washes over 10 or so people down the road. It’s the dealer, and the dealer’s vendors and their vendors, who will clearly have more money to be used to overconsume due to this program, probably negating in spades all the positive environmental aspects of the program. For example, someone four levels down from the dealer buys a Big Mac with the newfound cash. A Big Mac is what, $2?, but may cost $5 in environmental damage by the time the methane from the feed lot warms the Earth, the truck moves the beef from Colorado, the styrofoam sits in the landfill, etc.

  44. 44
    per_se says:

    RE: Markor @ 33

    True, but if we are only looking at environmental impact then the argument would be that we should go into a depression and revert back pre-industrial technology. I think it’s implied in an environmentalist agenda or mantra that we the goal is improvement of the environment without abandoning a market economy or significantly impacting the standard of living.

  45. 45
    wreckingbull says:

    As S-Crow pointed out in the forums, many buyers are getting hoodwinked.

    Many slime-ball dealers are simply jacking up prices via second-stickers. WAKE UP PEOPLE! Furthermore, I just don’ t understand the idea behind spending 25K to save 4.5K. The people turning in perfectly good cars are doing this that.

    Finally, as a wrench-turner myself, I have to say that the story in the WSJ about sodium silicate brought tears to my eyes. Unbelievable. How about just making the VIN not registerable? Then at least the ‘stimulus’ effect reaches to secondary parts dealers. We already have the network to do this, but that would just make too much sense. Welcome to the new and exciting world of top-heavy gubmint.

  46. 46
    Ryan says:

    Tim-

    Maybe you should start a new website called the carbubble that has lots of historical data about car prices and household incomes. Then you could show everyone just what a joke cars are in this market and how car prices are going to collapse. Instead of just making the losers (renters) with nice cars feel good like you do now, you could expand your cult into losers with crappy cars also.

  47. 47
    AMS says:

    RE: per_se @ 40

    Source?

    For what it is worth, my trade resulted in an improvement of exactly 10. I would have purchased the same car with the 2.4l motor, but that would have left $1,000 worth of Obama money on the table. In other words, I sought the full $4,500, so I targeted the 10 MPG. Now that I think about it, I could have gone with a Category 1 truck. The new vehicle would have only needed an improvement of 2 mpg for the $3,500 credit.

  48. 48
    Acerun says:

    Change we can all believe in………….:rolleyes:

  49. 49
    Kary L. Krismer says:

    By AMS @ 32:

    RE: per_se @ 29

    “A quarter million cars that now have 10MPG better fuel economy. Iâ��m pretty sure that does help the environment.”

    Not exactly.

    The improvement could be as low as 4MPG, and there is no upper cap. It will be interesting to see what the actual average improvement is.

    The improvement could be a negative number, since they’re based on EPA numbers which aren’t necessarily realistic.

  50. 50
    AMS says:

    RE: Markor @ 43

    It’s called the “Multiplier effect.”

    I guess if you want to take that approach, then we must consider that some of those downstream people will also improve efficiency by making a new car purchase. In other words, let’s apply the multiplier to efficiency. The basic question here is whether the total future value of the increased efficiency is worth the present cost, on a total lifetime costs basis, including all multiplier effects.

    Are we net-positive or net-negative? My guess is that we are net-positive when over the service (economic) life of the vehicle.

  51. 51
    Markor says:

    RE: per_se @ 44

    My point is just that the cash-for-clunkers program is probably a net loser for the environment.

  52. 52
    98115_Renter says:

    RE: AMS @ 47
    Source for clunker stats (NYT via DOT):

    http://www.nytimes.com/2009/08/04/business/04clunkers.html?scp=6&sq=&st=nyt

    Your 2mpg improvement would have set you up for lots of pain when the next gas shocks come. 10 mpg improvement is much better on your pocketbook if you drive a lot.

  53. 53
    AMS says:

    RE: wreckingbull @ 45

    The sodium silicate was disturbing to myself too, but in the case of my trade, I sent a Buick 3800 in for destruction. These motors are being crushed and shredded every day, so it really didn’t bring a single tear to my eye. On the other hand, there was a Buick Roadmaster at the dealership labeled “Clunker.” It was one with an LT1 motor. It still bothers me that a perfectly good LT1 motor is going to be trashed.

    Interestingly enough, my vehicle is rated by the EPA at 18. My sister has a Buick with EXACTLY THE SAME DRIVE TRAIN. It is the same model year. It has the same Buick 3800 motor. In fact, it has exactly the same 4T60 transmission with exactly the same final drive ratio. The curb weights are similar, yet her Buick was rated by the EPA at 20. My motor is considered a “gas guzzler” that need be destroyed, yet her Buick is considered too efficient. Her motor is spared from destruction, yet my same motor need be destroyed.

  54. 54
    98115_Renter says:

    RE: Kary L. Krismer @ 49

    EPA numbers usually overestimate the mileage of old cars.

    According to DOT, the average improvement in mileage from this program is 9.6 mpg.

    Also note that a small change in mpg from a very low mpg vehicle like a truck to a slightly better mpg has an even greater net effect than going from an efficient vehicle to a very efficient vehicle.

  55. 55
    demo kid says:

    @19: There are some ways that the bubble could have been mitigated, if not averted: raising interest rates, for example, would have probably had an impact, as well as stronger regulation of the speculative aspects of the market. Still, the nature of modern finance means that bubbles are encouraged to form by our system… with capital so mobile, it’s hard to keep money from pouring in and overvaluing anything anymore.

    The aging of the Baby Boomers is an issue on all sorts of fronts. I think that what you describe is somewhat of an issue now, but in 10-20 years when the children of the Baby Boomers start liquidating inherited assets (or even when Boomers liquidate and look to retire in even greater numbers), it’s going to get a whole lot worse. So I think that you’re right in that it’s a problem… I just think that you’re wrong in terms of timing.

    Still, “living beyond our means” is a relative concept. If we could be assured that economic activity will spike in 2 years, or 5, or 10, we could borrow against that for the lean times without too much of a problem. The problem for me, though, is when we base recession spending on what we expect to happen in the future, and NOT on what we saved up in the past. It isn’t responsible when the government encourages folks to spend like drunken sailors in both good times AND bad, ignoring that economies are cyclical. We should be increasing savings rates (and taxes) in boom periods and spending and lowering taxes in down periods (like now), and not going halfsies.

    @32: The improvement could be as low as 4MPG, and there is no upper cap. It will be interesting to see what the actual average improvement is.

    At the low end, a 4 MPG improvement is still sizable. If you bump up from 14 to 18 MPG for example, you’ll reduce your gasoline consumption by 18%. The issue is less whether there is a 10 MPG bump upwards, and more whether they bump that up by trading SUVs for compacts, or SUVs for other SUVs.

  56. 56
    AMS says:

    RE: 98115_Renter @ 52

    Oh, I don’t drive the new car that much. I still have another ‘clunker’ that would qualify, but it’s one rebate per person. In fact, the vehicles were sisters–same model years, same drive train, and so on. Both insured, registered and so on. I kept the better of the two. What am I driving today? Same old clunker. It’s really a nice vehicle. I just could not turn down the deal on the new vehicle. What’s funny is that I put about 3,000 miles on the clunker I traded in over the last two years. It was my contingency plan vehicle. Now I have a new contingency plan with a factory warranty.

    I keep very good records, and my actual MPG is between 21 and 22, which is above the EPA’s rating. I’m going to be interested in the new vehicle’s performance.

  57. 57
    Markor says:

    RE: AMS @ 50

    Multiplier effect, thanks.

    Are we net-positive or net-negative? My guess is that we are net-positive when over the service (economic) life of the vehicle.

    We may never know. I guess the opposite, if only because most Americans think nothing of overconsuming and polluting. For example, in every major city, even during this recession, millions of recyclable plastic water bottles–the majority of them, and bottled tap water is an extravagance in the first place–go to landfills (in Seattle’s case, after moved to Oregon). Were Americans a lot more caring about the environment as a general rule, I could believe that supposedly-environmental programs like cash-for-clunkers actually help the environment on net. Just the fact that the multiplier effect’s effect on the environment isn’t considered makes me suspect.

  58. 58
    98115_Renter says:

    RE: AMS @ 56

    I highly doubt that your situation is similar to others using the CARS rebate.

    I drive a ’93 Explorer which gets 17mpg combined. I have considered this program (have never purchased a new car before) but the fact is that I cannot afford a new car and am not interested in taking on more debt. But, I am on the cusp. If I had just a little more cash and a little less student loan debt, I would likely buy a new Focus or similar, which would raise my mpg to 28 combined.

  59. 59
    Softwarengineer says:

    RE: AMS @ 16

    I test drove the 2008 Toyota Corolla last summer on vacation, drove it thousands of miles

    The good things: I liked the thicker feel of the doors and metal [much better than Hyundai], the wheels looked nice and it was roomy enough for 6′ guys…..ohhh, it averaged almost exactly 30 mpg driving almost all highway, not really super impressive, but it started with a “3”….LOL….

    The bad things: Its 1.8 liter engine boasted 132 hp and 34 mpgs; but I’ll be quite frank, the automatic transmission must have a computer regulator to mitigate acceleraltion….I punched it on a flat with my daughter next to me and told her, “its punched”….she went, “really, its a dog”…..its acceleration was no faster punched than speeding up with computer cruise control, a dog [my 1989 Chevy Corsica, 90 hp, would run circles around it…LOL]. The mpgs weren’t anything near 34 either. My guess is Toyota’s automatic is no turbo hydromatic that GM/Mercedes uses [the newer GM tranny needs no scheduled maintenance for 100K miles either], so not near as reliable….sooooo, they mitigate your power to save the tranny….ask a mechanic [I’ve got a degree in Mech Engr, so am qualified too], he’ll agree with me. Its engine was taxed at 2500 RPM at 60 mph, while my 2.2 L 150 hp domestic runs at 2000 RPM at 70 mph and higher mpgs/power than this dog.

  60. 60
    AMS says:

    RE: Markor @ 57

    The trash from Seattle to Oregon is hauled on rails by train, not by truck. (At least that is environmentally friendly, and does not add to road congestion) http://www.seattlepi.com/local/323082_trashtrain10.html

    There is always a question of “Race to the top or race to the bottom?”

    Does the availability of cheap labor increase or decrease living standards? A person with a race to the top mentality might suggest that using cheap labor is net positive for all. The labor gets benefits, and all others get to buy cheap goods. A race to the bottom person would suggest that the cheap labor causes a degradation of total wages, and thus society is net worse off. The race to the bottom is the so-called “hub cap theory of auto manufacturing.” The Hub Cap theory goes something along the lines of why should American workers get paid $30 per hour to put a hub cap on a vehicle if there is someone else in the world willing to do the same job for $3 per hour?

  61. 61
    S-Crow says:

    I really like the VW TDI diesel. I didn’t like the phantom 2nd sticker showing up on lots in recent days that were absent just two weeks ago. It may fool a good buch of people to have the salesperson to talk a buyer into buying based upon the elevated purchase price, believing that they got a good buy after rebates. That is what burns me up about the program. The dealerships are not only trying to take advantage of the buyers that would never normally buy new, but they also want to reap the benefit of obtaining the vouchers intented to get old farts like me into their showrooms. You can have my business dealers, but not my taxpayer auto dealer bailout v2.0 money that everyone who qualifies for in the clunker program wants a return on.

    Jacking prices is really weak move.

    A prior commentor discussed how long it would take to recover the money paying 15-20-25K for a car with the gas savings you receive vs. driving around in my clunker. The real answer is very revealing: a long time. Unfortunately, driving around in a clunker does have it’s downside. I just replaced my fuel pump after my car wouldn’t start due to the fuel pump going out and got stranded up at Fred Meyer. But I sure like having $25K in my bank account making 2%.

    I think the potential is good that when the program is exhausted you will find higher incentives for 2009 auto’s still around that dealers could have sold TODAY if they refrained from the 2nd sticker price marketing gimmick. The net would be the same to the dealer; maybe even lower in the future.

    If people want to see what the used value of the 2009 vehicles already on the road or for sale would be, look at your NADA, Edmunds, Truecar.com, and others by visiting these automobile consumer websites.

    Ryan at 46: this site is a cult? No more than going to a Mike Ferry seminar for real estate agents.

  62. 62
    Markor says:

    RE: 98115_Renter @ 39

    Actually smaller cars are significantly more maneuverable and have a much shorter braking distance.

    Yep. Yet what would you rather be in, in a collision that may happen regardless (like someone running a red light)? I suspect that a collision between two SUVs is safer for the occupants than two Corollas, all else being equal. Could be outweighed in the Corolla by accidents that don’t happen due to better maneuverability and shorter braking distance though. I drive pretty defensively so I’m not too concerned about that myself, in my 2-ton vehicle.

  63. 63
    98115_Renter says:

    RE: Markor @ 62

    There are probably a lot of things you’re not too concerned about in your 2-ton vehicle.

  64. 64
    AMS says:

    RE: S-Crow @ 61

    Under the CARS program, the dealer is to give the consumer the full $4,500 in addition to factory rebates, etc. I am not sure how jacking up the MSRP accomplishes this. The dealership that I did business with was selling at MSRP. I think it would be hard to argue that the MSRP isn’t really the price of the car. But going beyond that seems, at least on the surface, to be not passing the rebate to the consumer. How can a dealership say, “We gave the consumer the $4,500 rebate, but we increased the price by $4,500 because of regional demand.” I would not do business with a dealership like that, and I think they are opening up a good case for fraud under the CARS Act.

    Of course a non-CARS customer could be paying more because of the CARS program, but I certainly don’t see how the dealerships could make a case to increase the price beyond the MSRP and suggest that they have given the consumer the rebate.

    As far as how long will it take me to recover the full $10k? I would also suggest that we consider the underlying value of the vehicle. My 15 year old vehicle had essentially no market value, and quite honestly was at the end of its economic life, but I kept it as a spare. How much is a factory warranty worth? If my fuel pump dies in my new vehicle, I’ll push my blue Onstar button for a tow to the local dealership and let them worry about it, at least in the first year while the Onstar is active. I don’t think I’ll be paying the $200 per year for the service, but the first year is included in the purchase price.

    What should be considered is the economic value and cost. Could I have kept my trade on the road for 5 years? Probably. Am I better off spending $9,500 for my new vehicle? My suggestion is yes. Could I drive the vehicle for a year and sell it for approximately what I purchased it for? Probably. Does that have economic value? Certainly.

  65. 65
    AMS says:

    RE: Markor @ 62

    I was quite surprised at all the safety features of my new Vibe. It has airbags all over the place, and the Onstar system automatically reports any major collision. I am not sure if my big old clunker is safer for a side impact than my new Vibe. Reporting a collision sooner rather than later certainly is a safety feature that is not matched by my old clunker.

  66. 66
    Softwarengineer says:

    RE: AMS @ 18

    About $10/hr less, more like $20/hr less….no retirement or other UAW benefits…

    The big thing all the American auto plants are doing to save costs: going to like Mexico for $5/hr slave labor parts…LOL

  67. 67
    Markor says:

    BTW, the best choice is probably to buy high-quality late-model Japanese (could be built in US), gently used, and then drive it until the wheels fall off. Mine still runs like the day I got it, after 150K miles and no major repairs. Even the interior has held up great. I’m hoping to get at least 300K. Buy GM and be lucky to get 100K before it hits the junkyard after numerous repairs.

  68. 68
    The Tim says:

    By Markor @ 62:

    I suspect that a collision between two SUVs is safer for the occupants than two Corollas, all else being equal. Not that I’m advocating SUVs.

    That would be because of a misunderstanding of physics. The occupants of the two Corollas would be safer. There is less momentum (mass * velocity) in the two Corolla collision than in the two SUV collision, thus less kinetic energy being dissipated into the crunching cars.

    Ek = kinetic energy
    m = mass
    v = velocity
    p = momentum

    p = m*v

    Ek = p2 / 2m

    Let’s say our 2 SUVs have a mass 2,500 kg each (roughly the mass of a Ford Expedition) and are traveling 25 meters per second (roughly 56mph). Ek = 781,250 Joules of energy that has to go somewhere in the collision.

    For two sedans with a mass of 1,200 kg each (roughly the mass of a Ford Focus) traveling the same 25 mps speed: Ek = 375,000 Joules of energy.

    Assuming each vehicle is equipped with similar safety features, you’re far safer in the two light cars collision than in the two heavy cars collision.

  69. 69
    AMS says:

    RE: Markor @ 67

    I don’t know how much clearer I can make this for you:

    The GM Vibe and Toyota Matrix are THE SAME VEHICLE BUILT WITH THE SAME PARTS AND SAME WORKERS ON THE SAME ASSEMBLY LINE, except for the wrapper.

    Are you going to suggest that the Toyota Matrix is a low-quality vehicle?

  70. 70
    AMS says:

    RE: The Tim @ 68

    The Tim-

    What you need to include here is the energy absorbed by the vehicles. Nascar, as I pointed out above, has far greater kinetic energy, but the vehicles are specifically designed to protect the driver. If the vehicles do not absorb the energy, then it is imparted to the occupants. Thus the bigger issue is not the total energy in the system, but rather, how much kinetic energy (delta) is transferred to the occupants.

    Two vehicles of similar size can have far different safety ratings.

  71. 71
    The Tim says:

    RE: AMS @ 70 – Hence my qualification: “assuming each vehicle is equipped with similar safety features.” That includes the crumple-ability of the vehicles in question.

  72. 72
    Markor says:

    RE: 98115_Renter @ 63

    There are probably a lot of things you’re not too concerned about in your 2-ton vehicle.

    LOL! I’m definitely a consumer (part of the problem). OTOH I haven’t thrown away a recyclable item in ages.

  73. 73
    AMS says:

    RE: The Tim @ 71

    If we assume that a small vehicle can absorb energy the same as a large vehicle, you are correct.

    The kinetic energy approach is sound, in my opinion.

    And the fact that kinetic energy goes up with the square of the velocity is a good reason to drive slower and not rev the motor. The kinetic energy on pistons/rods that are traveling at high RPMs is so much greater than the lower RPMs.

    But the square of the mass is also in there, but that is a constant, given the vehicle does not gain mass as it is driven down the road, excepting rain, snow, gas consumption, and so on.

    I wish every driver was required to take a basic course in Physics. Not only would energy be better understood, but coefficients of friction would be better understood too.

  74. 74
    The Tim says:

    By AMS @ 73:

    But the square of the mass is also in there, but that is a constant, given the vehicle does not gain mass as it is driven down the road, excepting rain, snow, gas consumption, and so on.

    Minor point: since mass is on the bottom of the equation as well, the relationship between kinetic energy and mass is linear. You are correct, speed is the much more important factor mathematically.

    I wish every driver was required to take a basic course in Physics. Not only would energy be better understood, but coefficients of friction would be better understood too.

    No doubt.

  75. 75
    AMS says:

    RE: The Tim @ 74

    I stand corrected about the mass being squared. Mass is a constant, however, in the systems that we are considering, given that the automobiles are basically a given weight.

  76. 76
    Ryan says:

    RE: AMS @ 73

    Seriously AMS, every driver should be required to take a basic course in physics?

  77. 77
    The Tim says:

    RE: AMS @ 75 – Yes, obviously. Once you’re driving a given vehicle already, the only factor you control on the road with respect to the kinetic energy is your velocity.

    I was just pointing out that the notion a lot of people have that larger vehicles are inherently safer due to their size is a misconception based on a lack of understanding of physics. You’re safer in a collision with a smaller car, true, but if that’s the only goal then eventually everyone will just be driving around in these.

  78. 78
    Softwarengineer says:

    RE: Markor @ 67

    I beg to differ and so would Kary an I imagine Tim’s Saturn too

    Did your dad buy Japanese? I bet if he did so do you….we get brainwashed by our parents…LOL

    BTW, if you haven’t cracked Consumers Reporst and JD Powers lately; theirs a lot of GM/Fords on the top of the heap lately…..but, IMO, its a moot point, when the worst (Chrysler) defect rate was 1.7 and the best (Toyota/GM/Honda) 1.2 in the first 6 months of ownership; so friggin’ what?

    I’ll take the GM with the seat belt that doesn’t click, you can have your Japanese car with the steering wheel that fails…LOL

    The key question now is, “what is the defect?”

    BTW….did you know foreign cars are exempt from mandatory safety recalls in America? Hades, there’s Japanese trucks and mini vans that catch fire or their wheels fall off; with no immediate safety recalls [until years after the lawsuits]….they’re voluntary for foreign cars in America.

    So don’t compare safety recalls on anything unless its domestic.

  79. 79
    Markor says:

    RE: The Tim @ 68

    Assuming each vehicle is equipped with similar safety features, you’re far safer in the two light cars collision than in the two heavy cars collision.

    I agree. But it’s not that clear-cut, because the extra mass in the heavy cars implies additional safety, esp. larger crumple zones. The extra mass in my vehicle indirectly allows my child to be a good 5 feet away from the rear bumper, whereas a child may be 2 feet away in a smaller car. Of course I’ll need some extra crumple zone when a same-mass vehicle rear-ends me, vs. a collision between two smaller cars.

  80. 80
    TJ_98370 says:

    RE: The Tim @ 77

    Too funny! Major amounts of kinetic energy generated when you get one of those things moving, and as a bonus feature, if you turn the turret around, it should discourage tail-gaters

  81. 81
    Markor says:

    RE: AMS @ 69

    Are you going to suggest that the Toyota Matrix is a low-quality vehicle?

    Nope, not disparaging your purchase at all. I’m surprised that Toyota and GM have a partnership though. Didn’t know that until this thread. I trust Toyota and doubt they’d let themselves be tarnished by GM.

  82. 82
    AMS says:

    RE: Ryan @ 76

    Yes, I am serious when I suggest every driver should take a basic course in Physics. I would rather have every driver take a rigorous Calculus based course, but I need to be a little bit realistic. I guess I should also suggest that while I’d like to see both mechanical and electrical being covered, I’d happily settle for a single semester of introductory Calculus based mechanical. No further Physics courses would be required.

    At one time I went around and asked everyone a seemingly simple innocent question:

    “How much gas does your car use?”

    The answers were hilarious!

    I will try and recall some of them for you.

    “About $20” (No mention of miles driven or cost per gallon, or time)
    “It’s a big tank, about 18 gallons” (I never knew if they were saying, “It IS a big tank” or “It HAS a big tank.”)
    “Not very much, I only fill it up once every couple of weeks.”
    Then there was the one that really cracked me up!!!
    “It used to take more, but I put smaller tires on the front. Now that I drive down hill everywhere it takes less.”
    WHAT? Put small tires on the front so you drive downhill everywhere? Huh?
    “Depends on how much the gas cost.”
    “Depends on how much I drive.”
    “It takes less if I drive it on ‘E'” One even went further and said, “If I fill it up, my wife will drive until it’s empty.” I guess one should be listed below, maybe.
    “It’s better when I don’t drive.”

    There were many other absurd replies. I wish I could remember them all.

    There were some people who had different ‘correct’ replies:

    “When I pull a trailer it takes more.”
    “Winter or summer blend?”
    “Highway or city driving?”
    “XX MPG”
    “I drive X on Y gallons.”
    “I drive about X miles per week, and it cost about Y, and gas cost about Z dollars per gallon.”

    And there were many other replies that were within reason.

    There were even a few that were truthful, such as:

    “My husband takes care of all that.”
    “When it’s on ‘E,’ I put gas in it.”

    Go asking around. It is pretty enlightening as to the misconceptions about energy and fuel economy.

    Just think about how much we all could save with some smaller tires on the front axle!

  83. 83
    ray pepper says:

    None of us should have cars. Buses, Trains, Planes, and Bikes. Thats it! Cars are just too dangerous!

    http://www.fugly.com/videos/4095/Pizza_Guy_Car_Accident.html

  84. 84
    AMS says:

    By Markor @ 81:

    RE: AMS @ 69

    Are you going to suggest that the Toyota Matrix is a low-quality vehicle?

    Nope, not disparaging your purchase at all. I’m surprised that Toyota and GM have a partnership though. Didn’t know that until this thread. I trust Toyota and doubt they’d let themselves be tarnished by GM.

    Here is what I don’t understand. If you go out to http://www.fueleconomy.gov, you will find that actual consumers give the Toyota Matrix higher MPGs than the Pontiac Vibe. Yet they are exactly the same vehicle. Why is the Toyota rated better when they are exactly the same?

  85. 85
    David Losh says:

    The post is about taking future demand and converting it into sales today. Those are good points and worth discussion. In the car world people who never considered new are thinking this may be a good deal. It is. Cars got to a point where at 100K miles they fall apart and nickle and dime you to death. You can still own a 1978 Cadillac with a steel engine and drive it into the ground, 1988 was getting questionable. So the demand was immediate and expanded the buyer pool.

    The car industry needed it as did lenders. It will pay for itself.

    Houses were another matter of propaganda. Yes. fence sitters bought in. It is a shame that people could be so gullible.

    In both programs by the government I think it’s important to remember that the banks, lenders, and financial markets are what need the cash infusion. All of these programs are creating debt instruments. The credit markets are flowing and that was the goal.

  86. 86
    mydquin says:

    Tim, you are correct that tax incentives “borrow” demand from the future. However, I think it is a mistake to consider stimulus programs, like Cash for Clunkers, to be futile exercises. You can’t just subtract artificially created current demand from future demand on a 1-to-1 basis.

    The whole point of stimulus (Keynesian policy) is to take the extremes out of economic swings. While stimulus in boom times is a mistake (e.g., 2003-2006), it is a good idea in recession. Extreme unemployment has secondary social & economic costs (e.g., crime, domestic violence, drug & alcohol problems). Moreover, programs like these counter dysfunctional expectational problems that can lead to self-reinforcing downward economic spirals.

    You also miss another point of cash for clunkers program. It has other secondary fuel savings effects that increase longer term economic productivity and national security.

  87. 87
    Markor says:

    RE: Softwarengineer @ 78

    Did your dad buy Japanese? I bet if he did so do you….we get brainwashed by our parents…LOL

    If I had a dime for every time I found the seat belt in an American car to be twisted during assembly, well I’d have about fifty cents. The quality has been appalling, as the head of GM development even admits.

    My dad had a Toyota, no problems, then switched to a new Chevy. One month off the lot the electrical system went kaput and it wasn’t covered under warranty (only the drivetrain was covered or somesuch b.s.). So I learned from my parents!

    Maybe GM / Ford is great now, but seeing the disproportionate percentage of those cars on the side of the highway, I doubt it.

  88. 88
    jon says:

    RE: The Tim @ 68

    A head on collision between two tanks will still be fatal, because tanks don’t have crumple zones. The occupants are going to impact whatever is in front of them within the vehicle at full velocity. The mass of the tank is not relevant in a tank on tank collision.

  89. 89
    TJ_98370 says:

    RE: Markor @ 81

    GM and Toyota have been “limited” partners since Lee Iacocca (remember him?) was running Chrysler. I remember Mr. Iacocca bitching about the fact that the biggest US manufacturer and the biggest Japanese manufacture were partnering to pursue monopolistic business practices.
    .
    Toyota wants to keep NUMMI partnership with GM
    .
    A February 1984 article:

    Iacocca Warns Public of Danger in GM-Toyota Deal
    .

  90. 90
    TJ_98370 says:

    NUMMI
    .
    New United Motor Manufacturing, Inc. is an automobile manufacturing plant in Fremont, California. The factory was originally a General Motors plant opened in 1962 and shut down in 1982. GM and Toyota reopened the factory as a joint venture in 1984 to manufacture vehicles to be sold under both brands. GM pulled out of the venture in June 2009. Toyota indicated it plans to pull out by end of August.
    .
    When it reopened for production in 1984, it was the first automotive joint venture plant in the United States. GM saw this joint venture as an opportunity to learn about the ideas of lean manufacturing from the Japanese company, while Toyota gained its first manufacturing base in North America and a chance to implement its production system in an American labor environment. Many business textbooks mention NUMMI when they discuss joint ventures……..
    .
    …….As of July of 2009, the NUMMI plant produces the Toyota Corolla compact car, Toyota Tacoma pickup truck, and the Pontiac Vibe hatchback, although the latter (Pontiac Vibe) will be discontinued in August 2009 as GM phases out the Pontiac brand.
    …….
    .
    Hmmmm. Maybe that’s why they are discounting Vibes so much….

  91. 91
    Markor says:

    Good info TJ. As I suspected, the Vibe is GM in name & service only; otherwise, it’s a Toyota.

  92. 92
    TJ_98370 says:

    RE: TJ_98370 @ 89

    “female dogging” ??????

    alternate – “a bad tempered womaning” :-)

  93. 93
    Rack says:

    What about the fact that they are erasing a lot of good product of the used market. Wouldn’t This hurt the availability of used cars more so than the demand of new cars. New cars will always have an appeal to many, because they are new.

    I know depreciation yadda yadda but many folks dont think that way.

  94. 94
    jon says:

    By Rack @ 93:

    What about the fact that they are erasing a lot of good product of the used market. Wouldn’t This hurt the availability of used cars more so than the demand of new cars. New cars will always have an appeal to many, because they are new.

    I know depreciation yadda yadda but many folks dont think that way.

    If a Republican had proposed Clunkers, there would be blood in the streets. Destroying affordable old cars and giving discounts to people buying new cars. It would be one thing if we had a balanced budget and paid for this ourselves, but the debt being used to pay for this is going to be paid for by our children.

    Off topic, but the video here is a great summary of what ObamaCare will bring us:

    http://hotair.com/archives/2009/08/07/daniel-hannan-on-obamacare-are-you-people-insane/

  95. 95
    sead97 says:

    The Onion is all over this:

    Nation Ready To Be Lied To About Economy Again
    http://www.theonion.com/content/news/nation_ready_to_be_lied_to_about

    Recession-Plagued Nation Demands New Bubble To Invest In
    http://www.theonion.com/content/news/recession_plagued_nation_demands

  96. 96
    vermillionsky says:

    AMS,

    My brother has a Vibe (not sure which year, but it was maybe the second year after they came out). He likes it a lot (good gas mileage, high seats for a car, etc.). His only complaint was an incident that occurred when he had to take it in for some repair or recall while it was still under warranty. The dealer service department had a hard time fixing the problem, and when he had to take it back for the third time the mechanic who had “fixed” it two times before made some comment to the effect of “I hate these *** Toyotas.” They didn’t want to work on it because it wasn’t one of “their” cars. This may have changed over the years, since it has been around for a while. His family still has it and likes the car itself, although their most recent purchase was an actual Toyota (Highlander Hybrid).

  97. 97
    cheapseats says:

    RE: AMS @ 9 – ” quantity of available cars for those people that are in that market”

    My apologies, I thought that you meant the quantity of cars available from the dealers. I have heard some pundits say that manufacturing needs to ramp back up to meet this new demand.

  98. 98
    cheapseats says:

    RE: AMS @ 9

    My apologies, I thought that you meant the quantity of cars available from the dealers. I have heard some pundits say that manufacturing needs to ramp back up to meet this new demand.

  99. 99
  100. 100
    demo kid says:

    @99: Perfect… I’d argue that it was probably way too high anyway.

  101. 101
    David Losh says:

    RE: Jonness @ 99

    Some person or entity owns the housing units, even if they are rentals.

  102. 102
    Jonness says:

    By David Losh @ 101:

    Some person or entity owns the housing units, even if they are rentals.

    Yes, but the claim made in the article is that the homeowner rate is currently well above historical norms and will slowly adjust back to a normal level. IOW, this adjustment will temper the legitimate new demand in the marketplace as we continue forward. (I’m keeping in mind the homeownership rate is based on how many people living in households own their homes).

    All the people who bought homes using lax credit standards and cheap loans drove the homeownership rate above sustainable levels. So far the rate has adjusted a couple of percentage points back toward sustainable levels. I believe the rate will continue to slowly adjust downward. IOW, new demand will be offset by a downward adjustment in the homeownership rate.

    For instance, young couple A gets good jobs after college and secures a loan to buy a starter home. Migrant worker couple B goes to the bank to secure a loan and is turned down. Net affect, the homeownership rate cannot remain at the current 67%. Instead, it goes to 63-64%.

    So in closing, yes someone owns the current homes in the U.S. But will these homes turn out to have been good investments?

  103. 103
    Kary L. Krismer says:

    I haven’t read all the latest comments here, but here’s a list of the most popular cars bought and traded in using CFC.

    http://blog.seattlepi.com/transportation/archives/175784.asp

    Why would people be trading in 4×4 F150s for higher mileage vehicles? I can see the SUVs, because they’re basically substitutes for cars.

  104. 104
    Jonness says:

    When investors and renters are involved in bidding wars to buy the available property, the price goes up. When only the investors can secure a loan to buy the property (or they pay for it with cash), the price remains at a more appropriate level.

  105. 105
    David Losh says:

    RE: Jonness @ 102

    A migrant worker may be a better home owner than a young couple with a new baby. It’s hard to say.

    What’s for sure is that the price of housing units needs to be unwound. My fear is that large entities will end up with the millions of housing units out there and use them as rentals. For me it’s going to be a quality of life issue.

    As an example here in Seattle on the corner of 85th and Aurora there are what look like hundreds of town houses. The area has always had a reputation for drugs and prostitution. As home prices decline I can’t picture what will happen to that area. It used to be duplex rentals now converted to owner occupied town houses.

    You can already see that some of those units converting back to rentals has diminished the livability of the owner occupied units. There are no home owner associations to keep up the common areas.

    Rather than focus on the negative aspects I think that home ownership is a good thing, for who ever wants that. I think that house prices and mortgage payments should be neck and neck with rental pricing. Owning a home should be a personal choice rather than something rich people do.

    The conclusion that I have come to is to stop using banks and start paying off properties. If properties get to cash pricing I think the playing field could be leveled. If deals are between individuals who save cash or do owner financing it takes the financial engineering out of the equation.

  106. 106
    Racket says:

    By Kary L. Krismer @ 103:

    Why would people be trading in 4×4 F150s for higher mileage vehicles? I can see the SUVs, because they’re basically substitutes for cars.

    Well like me, many people have a “dump truck” that I take to goto the dump, and to haul around materials.

    If I am buying a new vehicle and can get $4500 for my old POS truck that is worth $2k or less, sign me up.

    I’ll rent a truck if I need one /w the extra $2500 I got.

    now, I am not participatiting in CFC because I have other newer vehicles but if I was in the market, my pickup would be my clunker.

  107. 107
    Kary L. Krismer says:

    RE: Racket @ 106 – I have a 4×4 truck that’s worth less than $2,000, and I wouldn’t consider doing this. My truck isn’t a POS, however. And when it does get replace, it will be with another 4×4, although perhaps not a truck.

  108. 108
    TJ_98370 says:

    RE: Kary L. Krismer @ 103

    It’s interesting to note that all of the top 10 trade-ins are American nameplates. Six of the top 10 vehicles purchased are foreign nameplates.
    .
    I think Racket is right with his theory that alot of families have a beater pick-up that is used very occasionally to go to the dump, get a load of bark, haul grandma’s furniture to her new residence, etc.. An older pick-up easily fits the CARS trade-in criteria, so if I really wanted to access the $4,500 “free money” to buy a new car, the beater pick-up parked discreetly behind the house is a perfect candidate, which brings up another point. If a significant number of CARS Program trade-ins are rarely used vehicles, the program is less effective in getting “clunkers” off the road than it appears to be, because those “clunkers” really weren’t on the road all that much in the first place.

  109. 109
    patient says:

    In these times of health care debate it would be interresting to know how much traffic accidents costs in terms of health care each year and how much can be saved by putting people in safer cars via the cash for clunkers program by increased accident avoidance and reductions in accident severity. Could be a lot. And that’s just money, the fact that lifes and health can be saved is far more important than cost alone.

    Regarding a course in physics for drivers it could be a good idea but I think a mandatory course like the ones we have in my country of origin where you have to drive on a very slippery surface induced by plenty of water and be able to handle critical siutations by breaking and steering is more effiicent. Many do not know howto efficiently handle abs and other electronic help systems. The art to control and cancel slides is also severly lacking. Just bring a group of people out on a go cart track and you will be shocked to see the lack of driving skills on the limits and in critical situations. Typically people who has grown up driving on snow and ice is far more skilled drivers.

  110. 110
    98115_Renter says:

    RE: jon @ 94

    Opposition to health insurance reform is just one of many reasons why only 20% of Americans identify as Republican anymore.

    Take your scare tactics and shove them.

  111. 111
    David Losh says:

    RE: jon @ 94

    Now that really is hot air. A couple of old rich white guys sit around talking about the quality of health care. What a hoot. Is every one covered in England? Are we saying that the United States government is the same as the government in England? The english guy starts out by talking about how great our Constitution is then says our government won’t come up with the greatest Universal Health Care system in the world?

    UnAmerican talk and chatter, or how our government will be working against the People of the United States is a right of free speech. It’s unAmerican, the people on Fox News seem to be completely anti America. They hate the President and wish him ill, they hate our system of Democracy, it seems they want to elect a regime that will be one sided. I’m not sure but I think that’s facism, the one where military might and police powers enforce the will of the government? Is that the democracy that elected Hitler?

    If we don’t like it we vote.

  112. 112
    Mike2 says:

    GM has been re-branding Toyotas as Chevys, Pontiacs and Geos since the mid 80’s.

    The GM variants had similar reliability, but shared GM’s lower resale value. Some of the best used car bargains were the Geo Prisms (corollas) that could be had for a few grand less than the one marked “Toyota”.

    Vibe is the same story. I had one of the 2.4 liter versions as a rental a few weeks ago. Not a bad compact wagon at all – We fit 4 people plus luggage in that sucker. I may consider picking up one 2-3 years used when it comes time to replace our 98 Accord.

  113. 113
    mikal says:

    RE: TJ_98370 @ 108 – Just like you, I’m guessing that is a small amount as people that like those trucks, like myself, will be keeping them. If not, how will grandma move her furniture?

  114. 114
    TJ_98370 says:

    RE: mikal @ 113 – Yeah, it’s an unwritten rule. Owner’s of old pick-ups have to help move grandma. That’s just the way it is.

  115. 115

    RE: Mike2 @ 112

    Years ago I had the Chevy Nova, which in the late 80’s was a rebranded Corolla, and was the predecessor to the Prizm. Great car!

  116. 116
    Scotsman says:

    Bravo!, Tim! Slowly but surely more people are catching on to the idea that we’re in a hole, and all of the proposed solutions somehow involve digging faster and deeper. And they know it can’t work. You can never borrow your way out of debt.

    The arguments and justifications offered by those who don’t quite yet understand the entirety of the situation would be amusing if I, like a growing number of people, didn’t already know the ending is a tragedy.

  117. 117
    Herman says:

    I don’t think anyone out there is trying to push the idea that C4C is about the environment. Everyone knows it’s for the auto industry.

    The popularity on the Hill is interesting. Congress is pleased to have found a bailout that is fairly large scale and popular. Most of their attempts to push money from (future) taxpayers into businesses and the economy have been very poorly received. How much of the 700B stimulus money feels accessible to the average person? The appearance of that stimulus is a bunch of graft and waste a little trickle down benefit – not so appealing.

    I think we can look forward to more like this. Meaning, more methods of laundering money through consumers’ hands to the bailout recipients. The $8k home tax credit could yet see some more life.

    Someone on this thread remarked that this is good, countercyclical government policy. The problem is turning them off when the cycle turns. They become expectations and entitlements in no time. A budget surplus was good evidence of a high cycle, and what did we do? Tax cuts and heightened deficit spending. Fail.

  118. 118
    mikal says:

    RE: Herman @ 117 – Not we, George Bush and the republican congress.

  119. 119
    Softwarengineer says:

    RE: Markor @ 87

    I’ve got a friend who buys Toyota, but bought a 2008 Chevy Cobalt….he complained about the electrical power steering making an electrical motor noise [BTW, I couldn’t even hear it]…LOL

    When I opened the hood and told him his two month old 2007 Toyota Yaris’ radiator tank was way low [by at least 2 quarts] and leaking….he slammed the hood down and all but told me to go to Hades…LOL

    He now complains about brake noise on his Cobalt….I offerred to buy it from him and then he shut up…LOL

    He doesn’t want to go back to under powered Toyotas but won’t admit it…LOL

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