Cash for Clunker Craziness

On Friday, the House of Representatives voted to extend the Cash for Clunkers program another $2 billion after the originally allotted $1 billion ran out in a matter of days as opposed to the 4-5 months, it was thought it would take.  The Senate will vote on the proposed $2bn extension this week.  This is a problem.

I’ve been thinking about this for a while.

Almost exactly a year ago this weekend, I wrote a post on a then-proposed Cash for Clunker program that was outlined in that week’s Sunday Times by Alan Blinder. The title of my post:

“Cash for Clunkers: The Best Idea You’ve Never Heard Of”

It goes without saying, and serves as a complete understatement, to note that a lot has changed since then. From our economy to the leadership of our federal government to the fall of the U.S. auto industry to the passing of a $787 bn federal stimulus package to the way federal programs are implemented; it’s all different now.

In fact, in reading back over my post and thinking about this last year, it’s nearly impossible for me to fathom just how much has changed since then.

Most relevant to this post, I found myself reflecting today on all those changes as I thumbed through this week’s Sunday Times, and came across another article about a Cash for Clunkers program – only this time, of course, after the actual passing and implementation of the $1bn federal program (which, to remind, ran out of money within a matter of days because so many people wanted to take advantage of it so quickly.) Suffice to say the article was unnerving.

If you read back over my post from last July, you’ll notice that I was strongly in favor of implementing such a Cash for Clunker program on the national level at the time. At the time, it looked like an ideal program for supporting the “ailing” auto makers and “struggling” economy. That said, we’ve since seen both those massive entities completely “fail,” and the outlook is different now. Everything is different now, and it’s time to get real as it were.

I’m all for innovation in effective, responsible programs and big investments to solve our biggest challenges. I’d prefer those things come from the private sector whenever possible, but I do think government has an important role to play as well. I don’t know of a single person who has ever met me who would consider me to be conservative, so with that preface, I’ll be honest and say that the idea of throwing more money at this Cash for Clunkers program is highly concerning. In fact, I’m prepared to say, I think it’s likely to be flat out wrong.

The thing about free money is that – shockingly – people want it. As soon as they can get it. They’ll do just about anything for it – including inadvertently harming other industries and the very economy programs like this are well-intentionally designed to help.

As I often say, “the mix of good intentions with bad information is a recipe for disaster.”

The thing about government programs is that the people who call for them and pass the legislation that funds them almost always have the best of intentions (I honestly believe that to be true). But when the rubber meets the road (no pun intended), government fails more often than not in understanding how their billions will affect the people and industries that have to make those programs work.

This week we’ve watched as local dealerships, junk yards and confused buyers and sellers across the country try to make sense of Cash for Clunkers. The short version is that they can’t.

In the words of Sally Ann Maggio, a co-owner of Hackensack Auto Wreckers,  who was interviewed by the New York Times: “Oh my God, what a mess today…We have been overwhelmed with phone calls from the dealerships. They’re hitting the panic button.”

… yet there is a desire to immediately expand the program immediately with DOUBLE the original amount of cash available.

And that’s just the confusion problem. There’s another likely result of this program that few people have yet talked about, and it’s a vital point to consider before supporting the program.

Any “clunker” that is turned in through CforC must have its engine completely disabled and the car must be completely destroyed – without allowing for any of the car’s parts to be harvested. What this effectively means is that the supply of spare parts for the cars currently on the road today is significantly reduced as old cars are simply destroyed. That then raises the cost of keeping your old car running, as well as puts a substantial burden on the part of the economy that deals with after-market cars.  Which, beyond part supplies, of course includes used car dealers.

As the Cash for Clunkers program has only been around a week, it’s impossible to say what effect the program has had on any of these markets already, but I do know that the program was implemented with very little – if any – thought as to how it would affect these businesses and their owners.  What we have seen, however, is that the manner in which the program has hit the road so far has been quite the Charlie Foxtrot at least on the process level.

Before Congress launches into a multi-billion dollar expansion of the Cash for Clunkers program, it’s not just important, but rather should be required, that we know what the heck has happened with our first billion and how it has impacted the communities and businesses it’s operating in.  We then need to ask whether the way the program is being implemented is helping people or burdening the folks it’s touching (hint: it’s the latter so far). We especially need to know if it’s actually helping the economy and the car companies selling the cars.

Subsequently – if another dollar is going to be spent – the process and communication around the Cash for Clunkers would need to be evaluated and drastically improved.

Unfortunately, that kind of analysis, rethinking and improvement are not things government programs have proven particularly adept at in …well, ever.

And of course, all of that process assumes that the program will get re-upped by sympathetic Senators who want very much to be able to say “LOOK! We gave you free money!” next year in their re-election bids.  Instead of that assumption being the default, a very real consideration needs to be allowed to be “this program is not fulfilling its intended purpose and needs to die.”

I’m all for effective programs to be put in place if/when they’re needed to help people – and when they are put in place, I want them to succeed – but we MUST to be honest when they’re not helping, and that’s not something we’ve been very good at. Democrats in particular.

There are other issues with Cash for Clunkers that I don’t have enough expertise to go into so perhaps some commenters can help me out.

One area I’m most concerned about, though can’t say is happening with any certainty, is in regard to excited new car owners that have purchased fresh-off-the-assembly line cars through the program.  My sense is that the majority of people turning in “clunkers” may not be people in a position to purchase a brand new car. I would venture a guess that their cost-benefit would be better served spending a couple hundred dollars repairing their older car or a few thousand on a used car.  Instead, I would suspect there are now a couple thousand Americans who have signed on to making monthly payments on a new car they may not be able to afford…

While that sale may look good on a car companies ledger, if people can’t make their monthly payments it ultimately harms our economy instead of helping it.  Again, I have no idea if this is actually happening… but the laws of economics and human behavior (particularly American behavior) lead me to believe it’s more likely true than not.

Hope I’m wrong.