Please praise/critique/comment on its economic quality and importance to you.
Sungmin Song says:
I am writing a blog post about the government funded “Cash For Clunkers” Program. For a little bit of background information: The government created this program to encourage US consumers to trade in their old “clunkers” (defined as vehicles that receive less than 18mpg in total) and in return they receive a subsidy of $3,500 - $4,500 towards the purchase of a newer, cleaner and more fuel efficient vehicle that receives at least 24 mpg or more. Another caveat to add to this is that the stated 18mpg total fuel rating is the vehicle’s off the lot fuel rating (Even if that was 10-15 years ago).
I believe there were three intrinsic motivations behind this program, one being to remove gas guzzling ozone destroying machines off the road and the second being to encourage the American people to spend money, and lastly for consumers to bail out our failing auto industry (i.e. GM, Chrysler and Ford). The program is nearing an end considering that the $3 billion or so the government set aside for the program has nearly been depleted. The final numbers reported include: approximately 690,114 requests submitted by dealers, $2.87 billion in subsidy money (pending) there as you can see, the supply has been met with plenty of demand.
To do some analysis, allow me to refute some of the assumed original intrinsic motivations of the government as well as some other issues included.
- Assuming that half of the consumers used the $4,500 subsidy as a down payment towards the purchase of say a cheaper $15,000 car (hopefully), this means that they will essentially be $10,000 in debt. Say a fourth of the consumers spent the $4,500 subsidy towards a nicer $25,000 car which means about $20,500 in debt. And say the final fourth used the $4,500 subsidy towards the purchase of a much nicer $35,000 car. If we multiply the amount of debt accumulated (assuming everyone used the $4,500 as a down payment, because we’re in a time where we do not have any cash lying around) this is what we’ll come out with:
345,057 (690,114 consumers/2) x $10,000 (debt) = -$3,450,570,000
172,528 (690,114 consumers/4) x $20,500 (debt) = -$3,536,834,250
172,528 (690,114 consumers/4) x $30,500 (debt) = -5,262,119,250
Approximate Total: -$12.248 Billion in debt
I don’t want to look at the negative side of things because it is supposed to be an excellent program but think about what got us here in the first place, sub-prime debt to people who can’t pay them off. Can this be a microcosm of what brought us into this mess in the first place?
- The other intrinsic motivation was to have consumers to help out our ailing auto-industry (particularly GM and Chrysler). However, according to the final report that came out the top 5 vehicles that were purchased are the following:
- Toyota Corolla
- Honda Civic
- Toyota Camry
- Ford Focus FWD
- Hyundai Elantra
- Toyota Corolla