Cash for Clunkers program is fiasco

I am of the opinion that the Cash for Clunkers program was and is one of the biggest mistakes this country has made. It sums up and represents all that is wrong with the government’s approach to correcting this so called economic meltdown. Let me explain.

Cash for Clunkers is once again a knee jerk governmental reaction to a problem that would solve itself on its own if left to the natural forces of supply and demand. The idea instead is to follow the plan put forward by Germany and another country that slips my mind at this time and create an incentive for consumers to go out and spend their money. One major difference between our plan and theirs is that they limited the purchase to home grown vehicles, where as we limited it to gas thrifty cars no matter where they came from.

On the surface this sounds great. Haven’t we been told that the car industry was in trouble and then proved it by taking over two of the three remaining original American car companies. This would drive consumers to their doors just drooling over themselves in an effort to buy a car that Uncle Sam was willing to put the down payment on. And what a down payment, $3,500 to $4,500 and for what, my old worthless beater that was just barely running as it was. Besides if I tried to buy the car on my own, the dealer certainly wouldn’t give me anything for it and I would have to try and sell it myself or get a salvage yard to come haul it away.

Besides that, Congress social engineering kicks in and says why not make the deal available only to those that trade that old beater in on something that gets better gas mileage. That way, we can save the planet while helping to reduce our dependence on oil energy. What a deal.

What a deal is right. First of all, free money is never free. It has to come from somewhere and that somewhere is those that pay taxes and from those that don’t in the form of inflation as the dollar continues to tank for fear that the only way out of this excessive spend rate is to start the printing presses. There are some that will understand this but there are far too many yet that don’t. Those that don’t will soon feel the effects but sadly still not understand what happened or why.

The next thing we notice is that the money only went so far and so a second helping twice as big as the first was dished up while Congress patted itself on the back for finally doing something that helped people directly instead of just subsidizing the financial mistakes of Wall Street. Only thing is this big dollop of dollars like those before it does not help all Americans or even most Americans. It only helps those that fall into their specially defined category, namely those with a clunker/beater that is worth less than the amount of the rebate and gets lousy gas mileage. I have a friend that thinks her car is ready for the scrap heap (though knowing the type car it should be far from it) and all the hype has made her interested in trading in to take advantage but she found out she doesn’t qualify because her old steed is already a fuel efficient vehicle.

The other qualifier is that you must be in a position to be able to afford a new vehicle and not later but now. This isn’t always easy even in the best of times, but that is o.k. because you can just take out a loan. (Wait a minute; wasn’t that what got us into this mess in the first place, easily obtained excessive debt?) So if you can’t qualify for a loan or if you are not willing to qualify but you don’t have a pocket full of cash, sorry Charlie.

But who wouldn’t buy a car now; the incentive from the government is just the icing on the calk. The dealers must be dealing like crazy to stay afloat, after all we still remember the deals they were willing to make after 9/11and back then they were selling way more cars than they are now.

If you happened to look at any of the ads for new cars, have you really seen any deals being presented. Most of the dealers are moving cars so fast they don’t seem to worry about making a deal. They know that if you don’t want it they have another one right behind you that is more than willing. Besides they only have a limited inventory of eligible cars and the government is providing the incentive and they don’t even have to bargain on the value of your trade in so why not sell all cars at full retail MSRP? The dealers can’t help but be overjoyed because now they have buyers that won’t even bother to question the price.

And what of these old cars that are being turned in for free money. Well there first thing to do is to make sure they don’t get put back on the street, so they are destroyed with a mixture in the engine to seize it up for good and then off to the smasher to make sure that the vehicle is beyond the use of any mere mortal. The cars are not even sent to a junk yard to scrap the recyclable parts and put them to use on existing cars that could easily use that unscarred fender or rear axle to return an existing vehicle to serviceable condition without the need of going to a new parts supplier that will have to make the new part using new material (even if it is from recently smashed up traded in clunkers) and lots of energy to form that material into the needed part.

For those of us that have had to live on a budget and are of limited means, a used part was sometimes the only means of keeping our cars alive in good repair. That brings up the other hidden cost to this whole program. Used cars support more than just those that drive them. There is a whole industry built up to support those used cars. Used cars are also the means by which many people have been able to raise their standard of living.

As a person trades in their old vehicle and buy a new one, their old vehicle has value and is still useable by someone who is willing to pay money for that use. They themselves might be trading in their older vehicle in an effort to upgrade and in so doing free up another used vehicle to pass on to someone that has a need for cheap transportation. That vehicle is a means for some to get a much needed job, or to deliver a sick mother to a doctor appointment, or deliver children to school. The vehicle creates possibilities that would otherwise have a person do without.

As all of these vehicles disappear, there will be a whole group of people that rely on these most entry level of vehicles that will have to learn to do without for awhile. Their cost of entry just went up greatly because the supply of good serviceable cars has suddenly shrunken.

So who wins with this lousiest of all programs? The bailed out auto industry? Not if you look at the list of the top 10 qualifying cars and notice that not one of which comes from one of those bailed out car manufacturers. About the American car manufacturer and labor? Well if you look at the cars that are being bought and notice that many of those Toyotas and Hondas and the two Fords that made the list are built in America then yes perhaps some citizens benefited. But for how long? Is this just a massive promotional sale that will only last as long as the ‘free money’ but will return to gloom and doom as soon as it is gone? All indications are that the plants are not ready to crank up production just yet as this has just been an easy way to move existing inventory, in other words, things still look pretty bleak over all for the industry.

But what about the economy, won’t this provide the much needed stimulus we have all been talking about? If you were one of the ones that just happened to be in a position to take advantage of this program then you paid full retail for a vehicle that you are now committed to paying for the next 5 years for. This commitment of future cash flow means that the money is spent and cannot be used for any other purpose or purchase. The fact that the government subsidized the purchase, much like a tax deduction for mortgage interest, doesn’t make it any less spent, and unlike the government you cannot spend you income more than once.

As was illustrated earlier, this does nothing for the lower income brackets but steal away from them a sooner opportunity to move up a notch or two. And what about all the cars that will now be getting better gas mileage, doesn’t that help? States are already crying because they don’t receive enough of your money in the form of taxes so how do you think they will feel when you no longer by enough gas to cover their expected gas tax revenue. They are going to want more, mark my words. Also, I firmly believe that the free market would have given us cars and trucks with much higher gas mileage ratings than we have today if they had just been left alone and let the free market help drive demand rather than letting the government set mandates. If you could convince enough people that they really wanted high mileage vehicles, the market would and will supply them. Where there is value and demand there is a market.

So the only ones that benefit from this fiasco even if it is just temporarily are the car dealers that got one last chance to gouge the consumer if they were lucky enough to retain a dealership after the last round of closures. And if they are gouging, as any consumer should readily see, then are they really the dealers that should have survived the last round of closures. I look around and see the ones that made it near my area and definitely wonder ‘what were they thinking’? Come to think of it, I have been asking myself that question about a whole lot of things lately.

This is Ed Nef with a view from the Farr West.

A quick note from Oshkosh 2009

Oshkosh provides a platform to introduce the world to many new and wondrous things in the world of aviation. For those that have not heard of Oshkosh, it is a city in the state of Wisconsin that once a year hosts the EAA or Experimental Aircraft Association convention now known as EAA AirVenture. Aviation enthusiasts from all over the world come to celebrate their love of all things flying. It is the largest such event of its kind and one can quickly become overwhelmed through sensory overload as you try to take in all that is AirVenture Oshkosh.

I was able to see that latest advances in technology, from aircraft that would fly using electric motors as those being developed by Yuneec, to the new Airbus A380 the largest commercial passenger plane soon to take to the skies. The A380 is amazing and the demonstration flight was remarkable to watch. With the exception of one hard landing, the pilot really put on a show and really made me marvel at the progress that has been made over the years. To think that that plane can be configured to carry up to 850 passengers and do so much quieter than the planes of yesterday and today tends to boggle the mind.

Yuneec on the other hand is introducing electric motors to ultralights and powered paragliders. The desire to find new or rather alternative sources of energy has broadened the spectrum of what is available to the world of aviation and although electric motors seem appropriate in the automobile industry and more and more accepted with the introduction of hybrids, aviation was not one of the places that I thought battery power would show itself so soon beyond the novelty stage. Though they are still not the ideal candidate for long cross country flights, thanks must be given to companies like Yuneec, Sonex, and the ElectricFlyer for proving that the battery powered aircraft is a reality that can be enjoyed today. They may not be the first to create electric flight but they are certainly raising the bar.

If you get tired of hanging around terra firma, Oshkosh even inspires man to break from the bounds of gravity completely with the introduction of White Knight 2. Richard Branson teamed up with Burt Rutan to develop an aeronautical package that will deliver paying customers that chance to experience outer space. White Knight 2 is the launch vehicle that will take Spaceship 2 to a high enough altitude to enable it reach outer space under its available power. They proved it could be done winning the X Prize with the first generation and are proving it again with this 2nd generation, all without government sponsorship. Although in the air it looks like 2 airplanes holding hands you can’t help but be impressed watching it fly overhead.

The fun of Oshkosh is more than just the technology as you can tell it is also about the people behind the technology and all the people that have a love of aviation. I would like to share with you a story of an amazing person. Her name is Jessica Cox and though I missed seeing her I saw her aircraft at Oshkosh this year. I didn’t realize how amazing she was until I saw a little article about her in the local Milwaukee paper. I didn’t fully appreciate it until I happened onto this interview she did with AVweb. Check it out and I am sure you will be impressed also. It is amazing what mankind can accomplish when they don’t look at the world through the eyes of limitations.

http://www.youtube.com/watch?v=fK0LvmurKbU&feature=channel

This was just the tip of the airshow known as Oshkosh. A quick search will let you see just how vast the world of aviation has become. It easily captures my imagination and with all the wonderous new inventions being introduced it inspires me to work on my creativity and see if there isn’t just a little bit of that imagination still residing within. The dreams of flight still remain and I will continue to latch on at every chance.

This is Ed Nef with a view from the Farr West.