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 $3,500 loss.
One really begins to wonder whether or not Obama and the US congress simply don't bother to 'think through' the unintended consequences of new gov't subsidy programs, or whether they have indeed thought through such consequences in Machiavellian detail !?!?!?
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BUT Would I trade in my old Matodor to buy a new car? No. Because it serves its purpose now and will for many years to come; for another thing I already have the tools I need to keep it running. (And besides a neighbor is selling his 84 Delorean for 15k$.)
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