cash for clunkers

Temporarily Buoyed by Japanese Earthquake, General Motors Looks for Profit Overseas

by Hans Bader on May 14, 2011

in Bailout Watch, Economy, International, Trade

“GM sees China as a road to profit,” reports the Washington Post today. “GM last year sold more cars in China than in the United States,” ranging from “high-end Buicks” to “low-end Chevrolets.” It’s good that GM is expanding its markets overseas, because its current share of the U.S. auto market may not last.

Even GM’s own shareholders seem to recognize that, and the fact that its recent profits may only be temporary. As Mickey Kaus noted recently in the Daily Caller, General Motors’ “sales and prices are up recently in part only because competing Japanese car suppliers have been crippled by the earthquake and tsunami. GM’s stock fell today and is still below the initial IPO price” (that is, below the price of the stock when it was sold to shareholders by the U.S. government).

Before that, GM’s finances were temporarily buoyed by bad PR regarding Toyota’s alleged safety defects in its cars, which turned out to be largely bogus. (The Toyota crashes turned out to have been caused by driver error, not manufacturing defects).

These setbacks for Toyota temporarily drove buyers away from Toyota to GM, artificially propping up GM’s profitability. But devastating earthquakes like the one that hit Japan occur there only once or twice a century, and can’t keep GM profitable in the long-run.

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Study: Cash for Clunkers Didn’t Work

by Ryan Young on September 13, 2010 · 1 comment

in Deregulate to Stimulate, Economy, Stimulus to Nowhere

A new NBER working paper from Atif Mia and Amir Sufi finds that the Cash-for-Clunkers program didn’t work. Here’s part of the abstract:

We find that the program induced the purchase of an additional 360,000 cars in July and August of 2009. However, almost all of the additional purchases under the program were pulled forward from the very near future; the effect of the program on auto purchases is almost completely reversed by as early as March 2010 – only seven months after the program ended. The effect of the program on auto purchases was significantly more short-lived than previously suggested. We also find no evidence of an effect on employment, house prices, or household default rates in cities with higher exposure to the program.

In other words, cash for clunkers didn’t change how much people spent. It only changed when they spent. Sales were higher than normal during the program, and lower than normal after.

As the data come in, they are proving what theory predicts: fiscal stimulus doesn’t work. President George W. Bush tried Keynesian stimulus in 2001. It didn’t work. He tried again in 2003. It didn’t work then, either. President Obama’s stimulus programs aren’t faring any better. It’s time for a different approach.

The Starry-Eyed 37 Percent

by Ryan Young on September 2, 2009

in Culture, Healthcare, Politics as Usual, Zeitgeist

Some time ago I said that President Bush’s chronically low approval ratings were a good thing. Evidence of widespread skepticism about politicians. Or at least one of them.

This is why I welcome today’s news that 52% of people — a clear majority — have an unfavorable view of Congress. There is still much to do, though. Even after enduring two simultaneous land wars in Asia, record spending, record deficits, a housing crisis primarily of congress’ creation, bank bailouts, cap-and-trade, and cash for clunkers, 37% of Americans still retain a favorable view of Congress.

Jeez, what’s it take? Maybe health care?

LibertyWeek 57: The Scandal That Wouldn’t Die

by Richard Morrison on August 24, 2009

in CEI Projects, Podcast, Zeitgeist

Your host Richard Morrison welcomes back guest co-hosts William Yeatman and the Capital Research Center’s Jeremy Lott for Episode 57 of the LibertyWeek podcast. We start with Blue Dogs and health care legislation, cash for clunkers running on fumes, and AT&T’s response to an iPhone controversy. We continue on with the scandal that wouldn’t die and the architectural historian’s version of Olympic News.

SPECIAL BOOK FEATURE: Shattered Lives: One Hundred Victims of Government Health Care. This book documents stories from Canada, the United Kingdom, South Africa, Japan, Australia and elsewhere – countries in which citizens literally die waiting for health services. Published by the National Center for Public Policy Research. Download the pre-publication PDF here.

Cash for Clunkers Sputters to an End

by Ivan Osorio on August 20, 2009 · 2 comments

in Bailout Watch, Deregulate to Stimulate, Economy, Features, Mobility, Zeitgeist

The Transportation Department announced today that it will wind down the Cash for Clunkers program, which the Obama administration promoted as a way to both help the economy and clean up the environment, by Monday. It was supposed to spur car sales while replacing older cars with more fuel-efficient models.

As I noted here in an earlier post, “The car buying site Edmunds.com compared car sales under Cash for Clunkers with typical car sales over a similar period as that of the program’s existence, and found a net increase of only 50,000 cars — at a cost of $20,000 each.”

For more on Cash for Clunkers, see here.

Impossibly Awesome Cash for Clunkers Video

by Ryan Lynch on August 7, 2009 · 1 comment

in Culture, Economy, Mobility, Odds & Ends, Politics as Usual, Regulation, Stimulus to Nowhere, Zeitgeist

Reason TV hits a home run:

Massive savings from your own pocket!

Liberal Congressional Leaders Buy Luxury Jets, Trash the Environment

by Hans Bader on August 6, 2009 · 2 comments

in Energy, Environment, Ethanol, Global Warming, Healthcare, Politics as Usual, Sanctimony, Stimulus to Nowhere, Trade

Congress plans to spend $200 million on luxury jets for liberal House leaders, even though it earlier denounced the automakers for having corporate jets, and even though the luxury jets the House plans to buy emit vast amounts of pollution and greenhouse gases. Now they’ll be able to go on foreign junkets and hob-nob with wealthy lobbyists in style.

As Victor Davis Hanson notes, this excess and hypocrisy is typical of a House Speaker “Pelosi who rails about carbon footprints, but wants the biggest private-use jet she can get,” tax-raising liberal Congressmen like “Dodd and Rangel, who skip out on their own taxes, and find all sorts of immoral ways to finance and maintain second and third” homes, and Obama Administration nominees like Treasury Secretary Tim Geithner and HHS nominee Daschle “who favor more taxes — if they can avoid taxes, or have tax-free limo service.”

The know-nothings in Congress are poised to waste billions more on the cash-for-clunkers program, even though most Americans oppose it. It will have no overall environmental benefit, note CBS News and Fox News commentaries, even though its sponsors falsely claimed it would.

The clunkers program was slated to cost a billion dollars for the entire year, but it ended up running out of money after just 5 days. (Now, these same geniuses claim they can overhaul the health-care system for just a trillion dollars in increased federal spending. Don’t believe them: it will raise taxes and harm the insured. Health care bills always cost more than predicted.).

The cash-for-clunkers program is monumentally wasteful and stupid, destroying perfectly good automobiles, cutting off the supply of cheap used cars needed by poor people, and rewarding people who bought gas guzzlers rather than fuel-efficient vehicles.

It also provides surprisingly little benefit to the Detroit automakers that it was intended to bail out, who have already received more than $70 billion from taxpayers, and it wipes out jobs at used-car and parts businesses.

Congressional leaders and Obama also back a huge cap-and-trade carbon tax that would do little to protect the environment, while costing the economy trillions. The cap-and-trade tax was pushed through the House before the text of the bill even became available. The bill was over 1090 pages long and contained special interest giveaways to a legion of big corporations and their lobbyists. At the last minute, 300 more pages were added to the bill that few in Congress had even read, and had to be manually inserted into the existing 1000 pages after the bill was passed, based on guesses about where those pages would fit in. Thus, the bill did not even really exist at the time it was passed.

In 2008, Obama privately admitted to a San Francisco Chronicle reporter that his cap-and-trade carbon tax would cause people’s electric bills to “skyrocket.” The cap-and-trade tax will do little to cut greenhouse gas emissions, since it contains so many special interest giveaways and environmentally-destructive provisions like protections for ethanol, which promotes soil erosion and deforestation. Meanwhile, Obama has thwarted more use of nuclear energy, which reduces greenhouse gas emissions, by blocking use of the Yucca Mountain nuclear-waste disposal site after billions of dollars in taxpayer money had already been spent developing it.

The House has already passed $2 billion in additional spending on the wasteful cash-for-clunkers program, adding to more than $70 billion in wasteful auto bailouts. Senate Majority Leader Harry Reid (D-NV) wants to ram more spending on clunkers through the Senate before rising public opposition makes that possible — the same way Congressional leaders rammed through the $800 billion stimulus package before the public learned what was in it.

Buried in the stimulus package were provisions that ended welfare reform. The stimulus package is now projected to cut the size of the economy “in the long run.” The Administration claimed it would deliver a short-run “jolt” that would quickly lift the economy, but unemployment rose rapidly after its passage, and the package has actually destroyed thousands of jobs in America’s export sector, as well as subsidizing welfare and waste.

Carney on Cash for Clunkers

by Ivan Osorio on August 5, 2009 · 3 comments

in Bailout Watch, Economy, Politics as Usual

Former CEI Warren Brookes Fellow Tim Carney, highlights the high cost of the Cash for Clunkers program, which I wrote about here yesterday.

Two experts — car-selling Web site Edmunds.com and economic modeler Macroeconomic Advisers — estimated that a vast majority of the trade-ins that take advantage of Cash for Clunkers would have happened anyway.

But were Cash for Clunkers mere waste. The program has created some winners.

One lobbyist for this bill was Nucor Steel. In Cayuga County, N.Y., Nucor turns scrap steel into sheet metal and other steel products. The clunkers are now becoming a subsidized feedstock for Nucor, which helps explain why Sen. Chuck Schumer, D-N.Y., has led the push for $2 billion extra in clunker cash.

Then there’s Enterprise Rent-a-Car also backing the bill, supposedly out of solidarity with automakers. But Enterprise sells its rental cars after a few years. As a rental firm that buys its cars new, Enterprise benefits every time someone else scraps a used car.

And losers.

On the other side of the lobbying debate were non-dealer auto-repair shops, whose businesses depend on used or older cars, which the owners don’t take to the dealer for repair. Also, the Automotive Aftermarket Industry Association opposed the bill.

These are the guys who can sell you the headlight for your 1998 Ford Taurus, or who rebuild an engine out of a junked car.

Now, as Congres considers an additional $2 billion in funding for Cash for Clunkers, the Obama administration is refusing to release data on the effectiveness of the program. But hey, it’s not like this administration and Congress have tried to rush legislation before!

Cash for Clunkers’ Real Cost

by Ivan Osorio on August 4, 2009 · 5 comments

in Bailout Watch, Economy, Politics as Usual

As Frederic Bastiat succinctly noted long ago, when determining the effects of a specific action, it is necessary to consider not only “what is seen” — the observed effects of that action — but also “what is not seen” — opportunities forsaken for the chosen course of action. In public policy, this means that it is necessary to look not only at the alleged benefits of a specific policy after it’s enacted, but also at what would have happened if that policy had never been enacted.

Viewed in this light, the Cash for Clunkers program is a costly boondoggle that will yield little net benefit. The car buying site Edmunds.com compared car sales under Cash for Clunkers with typical car sales over a similar period as that of the program’s existence, and found a net increase of only 50,000 cars — at a cost of $20,000 each.

How is this possible? Edmunds.com’s research shows that typically 200,000 vehicles worth less than $4,500 are traded in for new vehicles every three months. At best the current Cash for Clunkers program will fund 250,000 such transactions in the same time period — a gain of only 50,000 vehicles. Given that this program is budgeted to cost $1,000,000,000, this increase will come at the cost of $20,000 per extra sale.

But it may get worse yet. With so many car buyers taking advantage of what many perceive as “free” government cash, the Cash for Clunkers program is nearly out of money. Naturally, politicians who supported the program take this as a sign of success, and therefore now want more money for the program. They’re likely to get it.

Worse, the Edmunds estimate is actually conservative, which means that costs could go even higher. As Avery Goodman of the business site Seeking Alpha notes:

The highest rebate is $4,500, and the lowest is $3,500. If everyone qualified for $4,500 per vehicle, about 222,000 vehicles would have just taken advantage of the government’s money. At $3,500, 286,000 vehicles will have been sold.

I assume that, given all the raving, the government will eventually get around to assigning more money. It will take at least 2 or 3 months for the legislation to work its way through Congress. Meanwhile, if all buyers have qualified for the higher $4,500 rebate, the “cash for clunkers” program will mean a marginal increase in car sales of 22,000 this quarter. $1 billion divided by 22,000 means a net cost to the government of $45,354 per car.

If all buyers only qualify for the $3,500 rebate, it means a marginal increase in sales of about 86,000, or a net cost to the taxpayers of $11,628 per vehicle. In all likelihood, however, there will probably be a mix of vehicles qualifying for various rebates between $3,500 and $4,500. Based upon that assumption, Edmunds.com estimates that the average cost to the taxpayer will be about $20,000 per vehicle.

Thus, two important things are not seen by Cash for Clunkers advocates — the fact that most of these car sales would have occurred anyway and  the business investment taxed way to pay for this wreck. (Thanks to Margaret Griffis for the tip.)

Billions More for Wasteful Auto Bailouts

by Hans Bader on July 31, 2009 · 1 comment

in Bailout Watch, Economy, Employment, Legal, Politics as Usual, Stimulus to Nowhere, Trade

The auto bailouts keep expanding. Billions more are going to be spent on wealthy auto-dealers, cash-for-clunkers, politically-correct cars few people will buy, and excessive benefits for autoworkers who are richer than the average American.

The Administration’s cash-for-clunkers program has already run out of money, burning through the $1 billion it was supposed to cost. The program rewards people who bought ancient gas-guzzlers, giving them, and not more environmentally-responsible people, federal tax credits for trading them in to buy new cars. The new cars purchased can be almost as gas-guzzling as the ones being traded in, getting as little as 2 miles a gallon more than their old gas-guzzler. The new purchases are supposed to boost the Detroit automakers that the Administration recently bailed out at a cost of $70 billion.

Although the money has run out, the Obama Administration says that it will keep running this wasteful program anyway, at taxpayers’ expense. During the Bush Administration, lawmakers of both parties said the government cannot spend money unless it has been legislatively appropriated, and that such limits are the “tap root of Anglo-American liberty.” But now, with a Democrat in the White House, liberal Congressional leaders are happy to see Obama spending money he doesn’t have, so that the cash-for-clunkers program can continue until Congress gets around to passing a bill that will authorize more spending.

House Democrats hope to vote today on a measure to authorize $2 billion more in spending on the program. But Senate approval isn’t expected soon. So there’s talk of using federal “stimulus money” to pay for cash-for-clunkers. (The $800 billion stimulus package is already full of welfare and waste. It is expected to cut the size of the economy “in the long run.” Although it was supposed to give the economy a short-run “jolt”, it actually destroyed thousands of jobs in America’s export sector, and increased unemployment. It also ended welfare reform.)

Taxpayers and businesses are expected to pay billions as a result of the Obama Administration’s decision to make a federal pension-insurer take over the massive pension liabilities of an auto-parts maker once owned by General Motors, so that General Motors, which was responsible for them, will have more money left over to maintain the extraordinarily generous pension benefits of the United Auto Workers, whose pay is much higher than that of the average American.

Meanwhile, in a move expected to cost General Motors around $2.5 billion annually, “the House has passed a bill reversing GM’s decision to shutter 2,000 auto dealers. Taking advantage of bankruptcy protection, GM undertook the cost-saving measure because state franchise laws had crippled its ability to reduce its bloated, 7,000-dealer network. By contrast, Toyota — with the same market share as GM — has fewer than 1,500 dealers.”

Henry Payne lists some of the many ways that the Detroit automakers have been mismanaged by the federal government “in just the last 90 days” of the bailouts: “At the request of the UAW, the President’s Auto Task Force forced GM to build its new “small-B segment” compact car in the United States instead of in the Far East. This despite the fact that not one manufacturer — not even the Asian companies — builds a small-B in the U.S., due to lack of market demand and high labor costs. GM likely would not build a small-B at all (since companies just emerging from bankruptcy usually try to build profitable products) were it not for the president’s personal distaste for GM’s lineup of ‘bigger, faster’ cars. To correct this, Obama has mandated the cars Detroit automakers “still refuse to make” — that is, a fleet of vehicles that average 35 mpg by 2016. After a one-on-one meeting with Rep. Barney Frank (D., Mass.), GM chief executive Fritz Henderson will delay the closing of a parts-distribution center in Norton, Mass.”

Payne also notes that the cash-for-clunkers program harms the economy by containing provisions that make “used-car and parts businesses suffer.”

The auto bailouts were funded primarily through money contained in the $700 billion bank bailout law passed last year. Diverting money from the bank bailout to auto bailouts was illegal or unconstitutional, agree many commentators, like the Heritage Foundation, Clinton Administration Labor Secretary Robert Reich, and liberal journalist Andrew Sullivan. The bailouts ripped off taxpayers, pension funds for public employees, banks, and non-union retirees, in order to enrich the United Auto Workers Union, whose excessive pay helped bankrupt the Detroit automakers. But the courts have avoided dealing with those serious legal issues by claiming (erroneously in my opinion) that the bailout’s critics were not the correct people to bring legal challenges.

The stimulus package may not be stimulating the economy, but maybe it’s not the economy it was designed to stimulate: “The National Endowment for the Arts may be spending some of the money it received from the [stimulus] to fund nude simulated-sex dances, Saturday night ‘pervert’ revues and the airing of pornographic horror films at art houses in San Francisco.” Meanwhile, unemployed blue-collar workers in construction and transportation were largely excluded from the stimulus package because helping them was viewed as politically-incorrect.