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cash for clunkers may cost govt. up to $45,354 per vehicle

Posted by WARREN MOSLER on July 31st, 2009


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“Cash for Clunkers” Program May Cost $45,354 per vehicle

By Avery Goodman

(Seeking Alpha) — The “Cash for Clunkers” program has been a “great success”, at least according to the government, and the auto industry. Within days of its kickoff, all $1 billion allocated to the program has been used up by Americans who have eagerly lined up to trade their clunkers for new vehicles.

Some refreshingly honest reporting has come from Edmunds.com, a car buying site that is telling the truth, in spite of benefiting from an increase in business and site traffic, due to the program. According to Edmunds, about 200,000 old low mileage cars would normally traded in, every 3 months, in exchange for more efficient higher mileage cars, without this program.

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.

Even most of the marginally extra sales really represent people who were going to buy a new car eventually anyway. They are just buying a bit sooner than they expected. Old clunkers don’t last forever, and they are almost all eventually replaced. The government is shifting tomorrow’s demand to today, stealing from tomorrow to pay for today, but at great cost to the taxpayer.


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8 Responses to “cash for clunkers may cost govt. up to $45,354 per vehicle”

  1. Mike S Says:

    I think I am missing something because this line:

    “$1 billion divided by 22,000 means a net cost to the government of $45,354 per car.”

    only makes sense if we are performing in 2007 auto sales numbers. We are at historic lows for auto sales with sales below 10 million annually. I suspect that the real number of people that would have traded in their cars for ones with better mileage is somewhere closer to 10,000 than 200,000 for this particular quarter, though I would have no way of knowing exactly what the number of mileage based tradeins is for this moment in time. Even the $20,000 number seems high to me, given auto sales are so low. People that drive old, low mileage cars are the least likely to buy new cars and the most likely to be in danger of losing their jobs – it is likely they would never have purchased a new car but rather purchased a used car as a means to trade up mileage performance.

    I agree we should have just handed out the money (!), but there is no way the headline number is remotely accurate.

    Reply

  2. Dave Begotka Says:

    Warren, I will trade you an 89 Chevy pick up for that yellow MT.

    Come on do your part to clean up the environment, KIDDING!

    I think the government needs to stay out of the auto industry! This is just more supplement to the losers who can not run a business with out the free help!

    Judging by the numbers of cars you have built, you are the most successful supercar builder in the country if not the world.

    Just think if somebody who knew as much as you do was running any of the big three!

    Reply

  3. Dissenting Comments Encouraged Says:

    “This is just more supplement to the losers who can not run a business with out the free help!”

    I agree Begotka, doesn’t the mosler cars get some subsidy from GM engines and other parts they didn’t have to develop, test, certify, and market all by themselves?

    “Judging by the numbers of cars you have built, you are the most successful supercar builder in the country if not the world.”

    Tell me more about mosler engines, did Warren go to metallurgy school, and then engine design and engineering school so he could build the best engine from scratch? My mechanic friends say rotary engines are better anyways but now electric engines are going to make dinosaur of gasoline engine.

    “Just think if somebody who knew as much as you do was running any of the big three!”

    LOL! Begotka, sometimes you have strokes of genius, like when you say the powers that be that have billions of dollars are not so stupid or else how do they have all the money, power, and high priced hookers. There is no reason mosler can’t make a people’s car for joe 5 pack is there? (can’t afford 6 pack anymore)

    Reply

    Dave Begotka Reply:

    Dysentery, I knew I would get a response on this one from you!

    I would bet Warrens “success” in building super cars has a lot to do with NOT spending a fortune on re-inventing an engine, and many other parts, the small block chevy has been developed by many and is very bullet proof. ANYBODY with half a brain can get a reliable 700hp out of one, but getting the power to the ground is the hard part!

    Your engineer friends should go back to school those rotary things are JUNK! All rev and the power never hits. If they were so great they would be raced by everybody.

    Dude it seems the thing you know the most about is what Warren has got and you do not.

    Joe 6 pack wants to drive a jacked up 4×4 with loud pipes and hate people who look different. They are dummies and need to wake up!

    Reply

    Matt Franko Reply:

    Dave,
    You may have seen this already but this is a youtube video from a UK show where they raced a MT900 vs Ducati bike, pretty cool..

    http://www.youtube.com/watch?v=Tm-ZejpCeo0

    Cheers, Matt

    Reply

    Dave Begotka Reply:

    Yes i have seen that one….. VERY COOL!

    Every time i ride a Ducati it blows up or breaks :(

    Dissenting Comments Encouraged Reply:

    Joe 6 pack wants to drive a jacked up 4×4 with loud pipes and hate people who look different.

    Have you ever tried driving your mt900 through the florida swamp bogs so you could bang the farmers daughter on the other side of the muddy field? When the only tool you have is an mt900, you don’t have access to the roads where the poor redneck girls live that like to have fun ;) You can keep your high class eliot spitzer 5K an hour women and thier louis vitton handbags, NO THANKS! I will take my redneck chicks who are happy if get them a piece of fried chicken.

    Reply

  4. Warren Mosler Says:

    the rotary has the wrong shaped combustion chamber for fuel efficiency.

    we buy our GM parts at prices they charge their dealers.

    Reply

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