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Thread: another gov't subsidy program for 'subprime' buyers ... 'Cash for Clunkers'

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    Default another gov't subsidy program for 'subprime' buyers ... 'Cash for Clunkers'

    Essentially, this new law authorizes a taxpayer funded $4,500 'rebate' on the purchase of a new vehicle using a 'worthless' trade-in. The new law also authorizes the repurchase of that 'worthless' trade-in from car dealers by a US gov't agency. In conjunction with GMAC TARP money backing 'subprime' auto loans for new GM and Chrysler vehicles, this makes it even easier for would-be 'subprime' new car buyers to afford to do so.

    But what does it cost the US taxpayer ? On a per-vehicle basis, it costs $3,500-$4,500 in 'rebate' money. It then costs a government agency another $1-2,000 to purchase the traded in 'clunker' from the car dealer at book value that would otherwise go to a scrapyard for a couple of hundred bucks. And nobody knows what the ultimate cost of gov't guaranteed GMAC 'subprime' auto loan losses will be.

    For 'whatever' reason, this 'cash for clunkers' program was tacked onto a middle east war spending bill, rather than being proposed and discussed as a separate measure !


    it is speculated that the 'cash for clunkers' program will actually accomplish the following ...

    - it will allow more 'subprime' car buyers to actually buy new cars they can't afford ( with GMAC / TARP / US Taxpayer assuming the risk of default in the case of new Chrysler / GM vehicle loans through GMAC)

    - it will increase actual showroom prices of 'lower end' new cars, which for 'cash for clunkers' customers will be offset by the 'rebate' but which for normal new car buyers will simply be an increased price.

    - it will increase profits for new car dealers ... or at least for car dealers that the White House hasn't 'axed' as part of the GM / Chrysler bailout.

    - it will increase sales and profits for makers of 'lower end' new cars and trucks ... which typically means certain models from GM and Chrysler, as well as Kia, Hyundai, Suzuki, Mahindra etc. It will probably NOT increase sales and profits for makers of 'higher end' new cars and trucks i.e. Honda, BMW, Toyota, Ford, Subaru etc. both due to the new vehicle 'price spread' and to some extent due to the greater difficulty of 'subprime' buyers receiving loan approval from non-TARP / non-US Gov't guaranteed lenders these 'higher end' brands must utilize.

    - it will depress the recent model used car market by making the (net of rebate) cost of a new car equal to or lower than the blue book purchase price of a 1-2 year old second-hand car. This will take a toll on used car dealers ( and particularly so on 'axed' ex-GM and Chrysler dealers who would attempt to stay alive via dealing only in used cars). This will also have a disproportionate negative affect on car brands which tend to retain a very high resale value i.e. Honda, Subaru, etc.

    - it actually creates a 'moral hazard' situation where a 'subprime' new car buyer can 'pocket' a good portion of the US Taxpayer funded 'rebate' by selling their newly purchased car into the used car market almost immediately. In other words, a 'lower end' new car like a Chevy Aveo can be purchased at a net cost of $12,000 - $3,500 'rebate' = $8,500 with a GMAC zero down loan. The new vehicle can then be sold privately for $10,000 with less than 1000 miles on it. The second-hand buyer (who was ineligible for the 'cash for clunkers' program) then shells out another $500 for a third party warrantee and essentially has a new car for a cost of $10,500 instead of $12,000 i.e. a $1,500 savings. The 'subprime' new car buyer who WAS eligible for the 'cash for clunkers' program pockets a $1,500 profit. The US taxpayer eats a $3,500 loss.


    One really begins to wonder whether or not Obama and the US congress simply don't bother to 'think through' the unintended consequences of new gov't subsidy programs, or whether they have indeed thought through such consequences in Machiavellian detail !?!?!?

    ~
    Last edited by Melonie; 06-20-2009 at 11:29 AM.

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    Default Re: another gov't subsidy program for 'subprime' buyers ... now for cars along with h

    Are you ready for a CHANGE? This is insane! What's the purpose of this and who's to benefit?

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    Default Re: another gov't subsidy program for 'subprime' buyers ... now for cars along with h

    ^^^ indeed there is much speculation ...

    - on the surface, one primary beneficiary would be low income / poor credit history buyers of low cost GMAC financed cars. Obviously, it is low income car owners who are most likely to already own the 'clunkers' eligible for this gov't 'rebate' program. Since receiving a large amount of TARP money, and since receiving authorization to form a new banking arm ALLY Bank, GMAC has begun approving new auto loans for people with low incomes and/or 'subprime' credit scores that other lenders don't want to touch. The $3,500-$4,500 taxpayer funded 'credit' can serve as down payment equity for the new auto loan which the low income / 'subprime' new car buyer doesn't need to come up with themselves, and the 'bought down' net price results in more affordable monthly payments. As to the soundness / future default rate on these new low income / 'subprime' auto loans, GMAC doesn't care. The majority of the loan funds originate with ALLY Bank CD money, and the US Taxpayer via FDIC is already on the hook to cover any future losses.

    - another major beneficiary will be the GMAC financed auto manufacturers Chrysler and GM. While the $3,500-$4,500 in 'free' down payment money will also aid other auto brands, these two brands have the most lenient auto lending standards and will thus attract buyers who cannot get approved for new car loans through private lenders or factory financing arms of foreign owned auto companies due to their low credit scores / poor credit histories. This will improve Chrysler / GM market share and sales volume.

    - the arguable STATED purpose of this new law was to accelerate the 'retirement' of older cars and trucks which got poor gas mileage and which had higher tailpipe emissions. This is probably true on the face of it. However, this was also necessary in order to justify a US gov't agency repurchasing traded in 'clunkers' from participating new car dealers at prices far above their actual 'scrap' value ... which increases profit margins for new car dealers selling cars under this program. As above, it is expected that the majority of said new car dealers selling cars under this program will be (remaining) GM and Chrysler dealers.

    I would also add that the major 'victims' of this program ( besides the US Taxpayer ) will be second-hand car dealers. By producing a de-facto $3,500-$4,500 reduction in the net price of new 2009 / 2010 autos, second hand car dealers sitting on 2009 / 2008 / 2007 models will find it extremely difficult to compete profitably with new car sales. This will be particularly damaging for brands of cars that have a reputation for holding high resale values i.e. Honda, Subaru, Toyota etc. Consider a specific example of say a Honda Civic. The 'new' sticker price is in the ballpark of $17k. But a 2007 Civic with say 30,000 miles has a book price of $14k. If the gov't is offering a net purchase cost on a 'new' Civic of $13.5k after the 'rebate', it will be impossible for Honda or used car dealers to sell 2008 and 2007 and maybe even 2006 models at a profit. As these second-hand vehicles are dealer owned / financed (as opposed to factory owned / financed), the associated dealers will be left taking a loss. The individual owners of high resale value Hondas, Subarus, Toyotas etc. will also experience a loss as the 'blue book' resale value of their cars quickly readjusts downward to price them below the 'bought down' net price of new vehicles of the same brand and model.

    - However, my little brother the car dealer speculates that what is actually likely to really happen as a result of the $3,500-$4,500 taxpayer funded buy-down is that the sticker price of all new 2010 vehicles will increase by $1000-$1500-$2000. This would help the profit margins of all auto manufacturers and all new auto dealers - albeit helping Chrysler and GM the most (since they won't experience as much in the way of offsetting losses on recent model low mileage used vehicles). Of course, once the existing 'inventory' of eligible 'clunkers' has been depleted via trade-ins under this new program, the higher sticker prices will still remain !

    - My little brother also points out that if the resale values of 1-2-3 year old cars take a tumble, the lease financing arms of high resale value Hondas, Subarus, Toyotas etc. will take huge losses. This will of course be due to the fact that the calculation of (comparartively low) lease costs for these brands was dependent on a high resale value at the end of the lease period ( i.e. the leasing cost was proportional to the gap between 'new' vehicle cost and 1-2-3 year old 'blue book' value, which is arguably only half as large for a new Honda civic as it is for a similar sticker price new Chevy Cobalt). By 'devaluing' the 'blue book' values of 1-2-3 year old high resale value vehicles, not only will Honda etc. take major losses on already existing lease returns, but the future differential in leasing cost between Honda and Chrysler / GM vehicles will be reduced ( which further improves sales / profit / market share potential for Chrysler and GM)


    In the way of farther reaching speculations ...

    - because Chrysler and GM will be 'helped' by this program, and because Honda, Subaru, Toyota, BMW etc. will be 'hurt' by this program, it arguably strengthens the hand of the UAW versus the non-union US employees of Honda, Subaru, Toyota, BMW etc.

    - The joker in the deck is of course the fact that this program also helps foreign owned non-US assembled low priced auto companies such as Kia, Hyundai, Mahindra etc. However, the tin foil hat crowd points out that this could be easily 'cured' by the imposition of carbon based tariffs on ALL imported fully assembled vehicles. Or, since the stated purpose of this program is emissions related (see above), program eligibility could be 'tweaked' to disallow or reduce the 'credit' for foreign vehicles whose production involves far higher levels of carbon / pollutant emissions (i.e. 'dirty' coal generated 3rd world electricity, unregulated polluting 3rd world factories etc.) than American made vehicles.

    - the conspiracy theorists would speculate that, with gov't involvement in GM / Chrysler, in GMAC, and now in GM / Chrysler dealers, the stage is being set for a gov't regulated 'sub-economy' in regard to new car sales to low income / bad credit history customers. If the only feasible alternative for low income / bad credit history would-be new car buyers is gov't 'subsidized' GMAC 'subprime' financing, this theoretically creates a situation where the US gov't can dictate the types of low cost cars that GM / Chrysler must produce in the future, and insures that enough 'captive' market share will exist via low income / bad credit history new car customers with GMAC as their only viable financing alternative to guarantee a viable market share for those gov't approved types of future low cost GM / Chrysler cars.

    ~
    Last edited by Melonie; 06-21-2009 at 05:13 AM.

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    Default Re: another gov't subsidy program for 'subprime' buyers ... 'Cash for Clunkers'

    It is to get old smokey, oil-burning, low-valued, rust-bucket gas-guzzlers of the road. Maybe it also helps new car dealers. But who says users of those old 'winter rats' can afford a new car even with all the rebates and credits? Guess I don't see it as successful either. Maybe it should apply to low fuel consumption used cars instead of new ones or domestic-made ones. Doesn't look like it was thought thru very well, like most add-ons. (Thats why the line-item veto is still important.)
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: another gov't subsidy program for 'subprime' buyers ... 'Cash for Clunkers'

    But who says users of those old 'winter rats' can afford a new car even with all the rebates and credits?
    essentially, this is the point about gov't subsidized GMAC financing. Just like 'subprime' mortgage borrowers being 'given' down payment money, and being approved for gov't subsidized mortgage loans they really couldn't afford with the US Taxpayer responsible for any losses (i.e. Freddie / Fannie), the 'subprime' Chevy Aveo buyers will be 'given' a $3,500 down payment via the 'cash for clunkers' program and will be approved for gov't subsidized car loans they really can't afford with the US Taxpayer responsible for any losses ( i.e. GMAC / TARP / FDIC).

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    Default Re: another gov't subsidy program for 'subprime' buyers ... 'Cash for Clunkers'

    Maybe they can afford it, given the 3500. If they can't afford it then, perhaps they are just stupid.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: another gov't subsidy program for 'subprime' buyers ... 'Cash for Clunkers'

    If they can't afford it then, perhaps they are just stupid
    How are they being stupid ? Again drawing an analogy to 'subprime' mortgages, it's highly probable that a moratorium will also be imposed against the repossession of cars when that vehicle is (supposedly) needed for the defaulting owner's continued employment (or continued search for employment).

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    Default Re: another gov't subsidy program for 'subprime' buyers ... 'Cash for Clunkers'

    Quote Originally Posted by threlayer View Post
    It is to get old smokey, oil-burning, low-valued, rust-bucket gas-guzzlers of the road. Maybe it also helps new car dealers. But who says users of those old 'winter rats' can afford a new car even with all the rebates and credits? Guess I don't see it as successful either. Maybe it should apply to low fuel consumption used cars instead of new ones or domestic-made ones. Doesn't look like it was thought thru very well, like most add-ons. (Thats why the line-item veto is still important.)
    But it's NOT going to get a single "clunker" off the road. What do you think the dealers are going to do with the gas guzzlers ? They are going to sell them as used cars. Either to wholesalers or to the public directly.

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    Default Re: another gov't subsidy program for 'subprime' buyers ... 'Cash for Clunkers'

    The old private-sale clunker will likely go to he scrap yard.

    It's being STUPID because they do not understand RISK or worse, ignore it. (What if they cannot later afford the (lowered) payments?)
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: another gov't subsidy program for 'subprime' buyers ... 'Cash for Clunkers'

    What do you think the dealers are going to do with the gas guzzlers ? They are going to sell them as used cars. Either to wholesalers or to the public directly.
    Actually, an as yet undetermined gov't agency will be empowered to 'repurchase' cars traded in under the 'cash for clunkers' program to guarantee that this does not happen. Of course this also means this gov't agency must pay the dealer the 'market value' of the used car, offset by the 'scrap' value received from the crusher ... thus adding another $1-2-3K in gov't (taxpayer) spending to the total cost of the transaction on top of the original $3,500-$4,500 'rebate' cost !


    It's being STUPID because they do not understand RISK or worse, ignore it. (What if they cannot later afford the (lowered) payments?)
    Well, if Fannie / Freddie 'subprime' mortgage policy is applied to GMAC 'subprime' auto loans, what will happen is that the delinquent new car buyer will be allowed to retain possession of the car, and will receive a gov't subsidized opportunity to refinance !

    ~
    Last edited by Melonie; 06-24-2009 at 10:05 AM.

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    Default Re: another gov't subsidy program for 'subprime' buyers ... 'Cash for Clunkers'

    Quote Originally Posted by Melonie View Post
    Actually, an as yet undetermined gov't agency will be empowered to 'repurchase' cars traded in under the 'cash for clunkers' program to guarantee that this does not happen. Of course this also means this gov't agency must pay the dealer the 'market value' of the used car, offset by the 'scrap' value received from the crusher ... thus adding another $1-2-3K in gov't (taxpayer) spending to the total cost of the transaction on top of the original $3,500-$4,500 'rebate' cost !




    Well, if Fannie / Freddie 'subprime' mortgage policy is applied to GMAC 'subprime' auto loans, what will happen is that the delinquent new car buyer will be allowed to retain possession of the car, and will receive a gov't subsidized opportunity to refinance !

    ~
    What if someone trades in a relatively new Hummer or Ford Excursion ? The market value is a LOT more than 2 or 3 thousand dollars.

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    Default Re: another gov't subsidy program for 'subprime' buyers ... 'Cash for Clunkers'

    ^^^ then it won't qualify for the 'cash for clunkers' program's $3,500-$4,500 'rebate'.

    (snip)"This following list is based on the requirements set forth in the most recent version of the “Cash for Clunkers” bill and was compiled on June 11, 2009.

    We compiled this list by searching the Edmunds.com vehicle database for models that have an average fuel economy of 18 mpg or less and for which at least one of the styles of that vehicle has a current average national trade‐in True Market Value® price (assuming clean vehicle condition and average mileage) of $4,500 or less. Accordingly, it is possible that some styles of a model may have a value higher than $4,500, and that the value of a particular vehicle may be higher because it is in exceptional condition or has very low mileage."(snip)

    from

    the list of the vehicles that will most likely be eligible for the 'cash for clunkers' was compiled by Edmunds at . The 'newest' model year shown on the list is 2003 - with the majority of vehicles being 1999 = 10 years or older. You correctly implied that the majority of the 'qualifying' vehicles are SUV's, full sized pickup trucks, full sized passenger cars etc.

    Essentially, the 'cash for clunkers' program establishes a taxpayer subsidized de-facto minimum trade-in value of $3,500-$4,500 for ANY vehicle that meets the program's eligibility requirements, even if the true trade-in value of that particular vehicle is only $200 !!!

    ~
    Last edited by Melonie; 06-24-2009 at 12:11 PM.

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    Default Re: another gov't subsidy program for 'subprime' buyers ... 'Cash for Clunkers'

    A few things on this:

    As I understand it ANYONE is eligable, you just need to have a qualifying vehicle, it does not matter what your income/credit score or whatever is if you have a truck that gets say 15 MPG and a new one gets 20 then you qualify for the 4500 dollars wheter you make 20 K a year or 100K a year. So it is not really a "sub-prime" situation

    My understanding also is that for a new vehicle to qualify it must be made in the US "cheap imports" from where ever will not qualify and I hope this is actually strongly enforced, enforced against all the GM Ford and Chrysler vehicles made in Mexico and Canada.

    I would rather see the credit go for the purchase of a Honda Accord made in Marysville Ohio or a Toyota Camry made in Spring Hill TN. than for a Dodge Ram made in Mexico city or a Chevy Malibu made in Canada.

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    Default Re: another gov't subsidy program for 'subprime' buyers ... 'Cash for Clunkers'

    ^^^ you're absolutely correct about anyone being eligible for the program as long as their 'clunker' is eligible. The point was that very few middle class people, and no rich people, own and actively drive 'clunkers'.

    Thus the program provides a subsidy to those people who are trading in a 10 year old 'clunker', but not to people who are trading in a 5 year old vehicle. With a few exceptions (i.e. winter rat as 2nd-3rd vehicle), the reason that most people are still driving 10 year old 'clunkers' is that they couldn't afford / couldn't get financing to purchase a newer vehicle !!!

    My understanding also is that for a new vehicle to qualify it must be made in the US "cheap imports" from where ever will not qualify and I hope this is actually strongly enforced, enforced against all the GM Ford and Chrysler vehicles made in Mexico and Canada.
    This isn't a condition of the 'clunker' law versions I have seen. It is also arguably against WTO rules.

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    Default Re: another gov't subsidy program for 'subprime' buyers ... 'Cash for Clunkers'

    Perhaps this should be a separate topic.

    I've never understood why Republicans, who are for big busines and also limited government, are also for free trade. Free trade against low-wage, low-worker protection, and low-pollution regulations (all of which help to lower production cost for foreign producers) changes the balance between production business in the US (with its evolved regulations) and unregulated production business in third-world countries. What rules here: the arbitrariness of dropping rules and to limit the scope of government _or_ protection of big businesses. You can't have both with such a small world unless you allow them to move overseas. Which does no one in the US any good except it allows in cheap foreign goods. Or is that the goal of Republicans -- accumulation?

    Does that mean conservatives want the US to lower wages, worker and environmental protection back to third-world levels, do they want big business to fail and thus the ecomony and our standard of lving, do they want the easy availability of cheap imported products, or is there a fourth alternative I don't recognize.

    So far to me it just seems irrational to have that set of incompatible goals.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: another gov't subsidy program for 'subprime' buyers ... 'Cash for Clunkers'

    Quote Originally Posted by Melonie View Post
    The point was that very few middle class people, and no rich people, own and actively drive 'clunkers'.
    HEY, I like my Matador!!!

    Quote Originally Posted by Melonie View Post
    With a few exceptions (i.e. winter rat as 2nd-3rd vehicle), the reason that most people are still driving 10 year old 'clunkers' is that they couldn't afford / couldn't get financing to purchase a newer vehicle !!!
    I like my winter rat. It goes well in the snow and is not too costly to drive. Many people aroud here use winter rats BECAUSE of the corrosion from road salt. They get any old car that isnt too expensive to maintain (or they get another one); they have no attachment to the car other than it saves the BODY on the one/s they like better. LOTS of people have winter rates and it is NOT because they cannot buy another car. It is because they want to avoid wasting their newer cars/s from corrosion. I say that's a good used of resources if it gets good mileage.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: another gov't subsidy program for 'subprime' buyers ... 'Cash for Clunkers'

    I think it must be stated even to some degree stressed that not everyone who has vehicles that under this bill would qualify as "clunkers" has them because they can afford a newer vehicle and that they are old POS rust buckets.

    I don't make 100 grand a year but I make more than enough and have excelent credit so it is not hat I can't buy a new vehicle.

    I have three vehicles, a 78 Jeep CJ-7 and 99 2 door Tahoe that can not be replaced, with new/newer vehicles. 99 was the last year for 2 door Tahoes, you can not buy a new one for any amount of money. You can buy a new Jeep Wrangler but that is like saying that next years new Camaro would "replace" a 68 Z-28.

    Both are in excellent shape without spot of rust on them. The other is a 6.5 L diesel powered 95 Z-71 Silverado. It has 233K miles on it. It is also in excellent condition, every factory option from stereo to AC to PWR everything and cruise control still work like new it has started started everytime I have ever turned the key and has never had anything other than routine maintenance, oil changes a trans flush, two set of shocks and brakes and it is on it's second set of batteries.

    I live in the South so we don't need to worry about winter road salt but it is one of those states that charges you an arm and almost two leggs for plates on a new vehicle so being that there is nothing wrong with any of my vehicles why would I want to buy new ones? The fact is though that prior to this if I had tried to trade any of them in to a new car dealer most would not have even considered them and if they did take them it would be for next to nothing and only in order to get the sale of a new vehicle.

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    Default Re: another gov't subsidy program for 'subprime' buyers ... 'Cash for Clunkers'

    ^^^ again you have an uncommon situation. The 'common' situation that the clunkers program is targeted towards are low income people who typically do not invest anywhere near the amount of money that you have in fully maintaining their older vehicles.

  19. #19
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    Default Re: another gov't subsidy program for 'subprime' buyers ... 'Cash for Clunkers'

    You may not have 'clunkers' in the technical sense of a clunker, but I seriously doubt your annual average aggregate mileage is over 15 mpg.

    My friend's big 1998 Mercury with its V-8 gets 24mpg average driving and over 27mpg on trips. That's a V-8!
    That's better than my V-8 Matador's 21mpg average (no long trips). Looks like it's finally worth some money. BUT Would I trade in my old Matodor to buy a new car? No. Because it serves its purpose now and will for many years to come; for another thing I already have the tools I need to keep it running. (And besides a neighbor is selling his 84 Delorean for 15k$.)

    My small truck with a very small engine can get over 30mpg average on pretty flat ground. When I take it into really hilly trerrain, the mileage goes down to below 20mpg, where a larger engine would have gotten a lot better mileage.

    These examples illustrate that reality is not always reflected in government incentives.
    Last edited by threlayer; 07-02-2009 at 07:19 PM.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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