If you’ve driven by a new car dealership lately, you’ll likely notice the same thing I did when I went out looking to buy a new car. The lots are barren. You’re lucky to find a dealership who has more than one of the model car you’re looking for, and even luckier if it happens to be the right color, with all the features you want.
The recent buying frenzy caused by Cash For Clunkers has diminished the supply of new cars available to dealers to sell, because manufacturers weren’t able to increase production enough in anticipation of the surge in demand. What this has done, is caused an increase in the price of new cars, potentially eliminating most, if not all savings the government incentive program provides.
What’s worse, is that the dealerships who have already made thousands of sales aren’t being reimbursed by the government. One Los Angeles area dealership has said that they have made about 270 clunker deals, and has only been reimbursed for two. That means that this dealership is owed around $1 million from the government. And that’s just one dealership. Nationwide, approximately 2% of all clunker deals have been paid out so far, and 80% of all applications are “rejected for minor oversights”.
Not only is the $3 billion program expensive, it’s clearly inefficient (like any other government program).
Additionally, think back to the lessons learned from the mortgage crisis, where people went further into debt than they could afford, ultimately foreclosing on their homes. If someone is driving around in a “clunker”, they’re probably doing so because they can’t afford to buy a brand new vehicle. They might be better off if they upgraded to a nicer used vehicle, but many of the new vehicles that qualify for the program are expensive. The auto finance companies are loving life right now, but they’ll be looking for another bailout once people start defaulting on their loans.
Come to think of it, why are only new cars accepted in the clunkers program? It seems to me that buying a more fuel efficient used car would be better for the environment than manufacturing a brand new fuel efficient car. Not to mention the environmental impact of increased scrapping of some perfectly good cars. Seems to me like the program is more of a bailout for the automakers than it is an environmental incentive.