Cash for Clunkers

money-flying-awayBy all accounts, the cash for clunkers program has been a huge success.  Never mind the fact that auto dealerships want nothing to do with the bureaucratic red tape and if at all possible will steer a customer toward conventional financing.  The fact of the matter is that it has been a real boost to the economy.

So who really has benefited from this program?

  • Some consumers, who traded up from old gas guzzlers to spiffy new fuel-efficient models,
  • Auto dealers, who were able to dump inventory and pay their financiers,
  • Banks, who all of a sudden, had some new auto loan volume, with up to $4,500 down-payments,
  • Auto companies, especially Ford, Toyota, Honda and Nissan, who led the pack in sales.  Conspicuously absent from the list were the beneficiaries of the government’s bailout program, General Motors and Chrysler.  The car companies were also able to unload a bunch of inventory,
  • Unions, who conceivably will be called back to work to replace all of that sold inventory,
  • Steel manufacturers, such as Nucor, who will be able to buy cheap scrap steel and turn it into something usable,
  • The green movement, because these new cars will be spitting out fewer greenhouse gas emissions,
  • And the biggest winner of all, the Obama Administration, who was able to satisfy a number of constuencies and supporters, namely, the unions, the green folks, and the car companies they now run (GM and Chrysler).  In the process, the President will be able to boast how this will boost the nation’s Gross Domestic Product and single-handedly pull us out of recession.

With so many winners, how can there be any losers?  Of course, there are always losers.  In this case, about 250 million of them–the American taxpayer.  Taxpayers lose in two ways on this deal.  First, they actually have to fund the out-of-pocket costs to the dealerships.  Second, future auto demand was sacrificed at the altar of current demand.  The cars that were sold in this quarter will not be sold in the future, depressing future economic growth.

Here is what has become abundantly clear:  our car companies cannot compete and survive without subsidies.  For years, the Big Three offered 0% financing and generous incentives up to $2,500 in order to peddle their product.  The losers at that time were the shareholders, since they ultimately ended up funding the subsidies.  Now it’s the taxpayers.  If the Big Three didn’t offer subsidies, demand would normalize, the companies themselves would shrink to support the reduced demand, massive layoffs of administrative and union employees would occur.  And at the end of this mini-recession, the car companies would emerge healthier, demand would be real and not inflated by subsidies, and prices would reflect what it actually cost to build a car and not be distorted by legacy union costs.

But that’s free market capitalism, and the United States of America is not currently being run by free market capitalists.  The country is run by Socialists, and the Cash for Clunkers program was just another wealth redistribution program for the benefit of Obama supporters.  Welcome to the era of “Hope and Change”.

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