Tag Archives: stimulus

Cash for Clunkers is on

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More details are emerging about the “cash for clunkers” incentive program that was approved by the Senate this week. It sounds better than what had been proposed back in January. From the AP:

Here’s how the plan works: Car owners could get a voucher worth $3,500 if they traded in a vehicle getting 18 miles per gallon or less for one getting at least 22 mpg. The voucher would grow to $4,500 if the new car’s mileage was 10 mpg higher than the old vehicle. The mpg figures are listed on the car’s window sticker.

Owners of sport utility vehicles, pickup trucks or minivans getting 18 mpg or less could receive a voucher for $3,500 if their new truck or SUV got at least 2 mpg higher than their old vehicle. The voucher would increase to $4,500 if the mileage of the new truck or SUV was at least 5 mpg higher than the older vehicle.

The program was aimed at replacing older vehicles _ built in model year 1984 or later _ and would not make financial sense for someone owning a vehicle with a trade-in value greater than $3,500 or $4,500.

The MPG stipulation makes sense, and it’s not $10,000 as had been proposed earlier. Steven Levitt on Freakonomics blog is still skeptical, however:

Let’s say you own one of those vehicles which you could sell for $3,000. If you use Cash for Clunkers you get an extra $1,000 for your vehicle. So of those 5 million people driving gas-guzzling old beaters that are worth almost nothing, how many of them are going to be pushed over the margin to buy a fancy new vehicle because of a $1,000 subsidy?

I have no idea where he’d find a car that would qualify for the subsidy that could get $3000 on the open market. Even pre-1990 Volvos barely pull $2000. Good luck getting even that much for a 1983 Ford Escort.

But Steven’s original argument is still strong: people who are driving cars that qualify for the incentive program probably aren’t in the market for a new car. Those who are in the market have a great incentive to search for any old P.O.S. to limp into the dealer for a nice $4500 rebate. The secondary market that will arise would be an indirect consequence of this silly program.

GM Finally Gets the Ear of Congress

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Robert Lutz, vice chair of GM, tosses off this nugget of revisionist history in a quote from Monday’s NY Times article about the bankruptcy of GM:

“…for the first time in our history, the American auto industry has the ear of the administration.”

Is he saying that in the entire history of the American auto industry, this is the first time they’ve had a hearing with the president and congress? That’s preposterous on its face. A little over 50 years ago the auto industry worked hand-in-hand with President Dwight D. Eisenhower to have the Interstate Highway System built with federal funds. Not to mention numerous times the auto industry successfully blocked safety regulations and fuel efficiency requirements.

Even if we limit his statement just to GM and the Obama administration it’s still ridiculous. According to Bloomberg News, General Motors spent $2.8 million lobbying congress in just the first three months of 2009. According in the Center for Media and Democracy GM spent $8.8 million lobbying congress in 2006. Are we supposed to believe they didn’t have the ear of the administration until this week? What they didn’t have until this week was a taxpayer injection of $50 billion.

GM got our money despite taxpayer sentiment in the US:

The disconnect between how the auto industry is perceived in Detroit and in the rest of the country was underscored in an April survey by CNN; it showed 76 percent of Americans favored allowing GM to fall into bankruptcy rather than extending further government aid.

Allison Kilkenny has a great post comparing GM to an abusive spouse:

Only in this country would a corporation’s executives have the nerve to close factories and relocate them to Mexico to exploit cheap labor, systematically work to suppress public mass transit and fuel-efficient vehicles, shelter its revenues from taxation in multiple offshore havens, and still crawl to the government weeping and crying when it needs money.

Not only that, but the government will hand GM another bailout check with taxpayer money without asking for anything in return, effectively socializing the investment’s risk whilst privatizing the profit…again.

Perhaps I just need to start saving $8 million a year so I can get the ear of this administration.

Image from Idiocracy