Cash for Clunkers is a bureaucratic nightmare
Below is a series of articles on this program by Donald Sensing and Michael Barone. Unbelievable.
A former car salesman peels the onion on the "cash for clunkers" program and explains why it has basically collapsed under its own weight. The full story is here, my summary is below.
1. The application per car is 20 pages! Because the information needed requires multiple sourcing, it can take dealers a few days to complete. Meanwhile, they've already credited the customer with the $3,500-$4,500 rebate, which comes out of the dealer's cash flow. Unless there is rapid turnaround by the feds to send the dealers the money, dealer rapidly are running out of cash reserves to float the balances. Basically, the dealers are loaning the government thousands of dollars per transaction.
2. Dealers have to permanently disable the drive train of the trade-in by pouring a specified solution of sodium silicate into the crankcase. This must be done before the junker can give his required signature. But this solution is in short supply and many dealers have run out.
3. Applications are complete on the CARS program's web site, but it repeatedly crashes because it can't handle the volume.
4. Many applications are denied by the feds, but the trade-in "clunker" has to be junked before the application can be submitted.
Oh my God! When the application is denied (and lots of them are) how do the dealer and buyer unwind the deal? They can't. Someone is a loser at that point.
5. That leaves dealers holding the bag - an empty one. They are asking customers to pay the amount of the refused rebate or turn the car back in - but the customers can't get their trade-in back because it's already been junked. Denial of rebates happens for a wide range of reasons, including a single field on the 20-page application left blank.
But don't worry - Obamacare will be a model of clarity and efficiency. So will cap and trade, you betcha.
See also Prof. Mark Perry's piece, "Cash for Clunkers: 136 Pages of Rules and Regs; How Many Pages for Government Health Care?"
Today the US House approved another $2B for the program. Which does nothing to address the structural, inherent flaws of the program. But that's Congress - any problem can be solved by throwing our money at it. When, oh, when will the government ever learn that it has no money of its own?
HT: Jaxson
BY DONALD SENSING
senseofevents.blogspot.com
$4,500 for everybody!
A few days ago I asked a simple question about the cash for clunkers program, in which the government gives my money and yours to someone else to buy a new car.
What's next, Vegas or Disney World vacations? Preposterous, you say? Why?
Today the Wall Street Journal asks basically the same thing in, "Cash From Clunkers-Let’s have a $4,500 subsidy for everything."
What the clunker policy really proves is that Americans aren’t stupid and will let some other taxpayer buy them a free lunch if given the chance. ... It’s hardly surprising that Peter is willing to use a donation from his neighbor Paul, midwifed by Uncle Sugar, to class up his driveway. ...
[S]ince money is no object, let’s give everyone a $4,500 voucher for other consumer goods. Let’s have taxpayers subsidize the purchase of kitchen appliances, women’s clothing, the latest Big Bertha driver—our Taylor-made is certainly a clunker—and new fishing boats. These are hardly less deserving of subsidies than cars, and as long as everyone thinks we can conjure wealth out of $4,500 giveaways, let’s go all the way.
But this program isn't near the success the administration is touting. An analysis on Edmunds.com says,
As we noted earlier in July, over 100,000 buyers had put their purchase on hold waiting for the Cash for Clunkers to launch. Is it any wonder that showrooms filled and the government servers crashed when this backlog of buyers rushed to finalize their purchase?
Holy cow. So from the announcement of the program to its actual implementation - roughly a month - over 100K auto purchases were postponed.
Secondly, last week we published an analysis showing that in any given month 60,000 to 70,000 "clunker-like" deals happen with no government program in place. In other words, the 200,000-plus deals the government was originally prepared to fund were barely above the "natural" clunker trade-in rate.
That would be the 100K deferred sales plus the normal 70K or so, totaling not much less, for economic effect, than the 200,000 that C4C is intended to fund.
In fact, students of economic theory will quickly recognize the dynamics of a classic shortage. We have taken three to four months of normal activity and caused them to occur over a few days, as consumers rushed to not miss out.
Both Edmunds and the WSJ predict that this fall, when the new-model-year cars are released, will see disappointing sales because people will have bought their new car this summer, to get the welfare payment C4C rebate while they can.
Beware, writes Michael Barone, of unintended consequences.
BY DONALD SENSING
senseofevents.blogspot.com
Beware the High Cost of Unintended Consequences
By Michael Barone
.........
The teachable moment came at midnight Thursday when the government decided to suspend the less-than-four-weeks-old Cash for Clunkers program. Congress scheduled it to last until November. But many more car owners than predicted walked into dealers to qualify for the $3,500 or $4,500 rebates for trading in their old cars for new ones with slightly (four miles per gallon) better gas mileage.
Mind you, the government hasn't yet shelled out the $1 billion authorized for Cash for Clunkers. Dealers reduce the buyers' prices and have to apply to the National Highway Traffic Safety Administration for the rebates and NHTSA -- surprise, surprise -- has only managed to process 23,000 of an estimated 250,000 applications. The checks, we are told, will be in the mail. Oh, there's another problem: The dealers are required to destroy the clunkers, which will reduce the supply and increase the price of spare parts for those low-income folks who can't afford to trade their clunkers in even with a $4,500 subsidy. So much for helping the poor.
What a great idea. Spending a billion dollars - and $2 billion more to come - to delay 100K trade-ins and speed up some others. Basically just money wasted to distort the market. What a ridiculous waste of massive amounts of money.
Cash for Clunkers is a prime example of the unanticipated consequences of hastily drafted legislation. The House voted hurriedly Friday to transfer $2 billion of stimulus funds to Cash for Clunkers, and the Senate will probably agree next week. But who thinks Congress will stop there? There will still be plenty of clunkers on the road.
This brings to mind a similarly well-intentioned 2000 Arizona law that paid $22,000 per vehicle to owners of cars operable with alternative fuels. SUV owners began installing small propane tanks and pocketing the money; the law didn't say they actually had to use the propane. A program estimated to cost $5 million ballooned to $500 million, one-tenth the state budget. The Arizona legislature, unable to print money, repealed the law. Congress is not similarly constrained.
If such simple laws can have such huge unanticipated consequences, what should we expect from the 1,000-plus-page laws congressional Democrats have been trying to write that would regulate the provision and financing of health care, one-sixth of our total economy?
Ballooning costs, for one thing. Not many members of Congress -- maybe not any -- have had the time or motivation to read through 1,000-page bills to figure out how someone could game the system to bring in great gushers of government money. But some nontrivial number of 307,000,000 Americans will do so. And some will figure out how to tap the federal treasury to their advantage.
More important, any health care legislation will inevitably affect medical treatment and care. Under the Democrats' bills, the government will regulate the terms and conditions of health-insurance plans to reduce choice and discourage treatments that some centralized experts decide aren't cost effective. Never mind that experts currently differ on these matters, and constantly revise their assessments based on new information; certain procedures will be frozen into place.
The government insurance "option" sought by Barack Obama and liberal Democrats is clearly intended, as Congressman Barney Frank confessed the other day, to be the best way to get to a single-payer system like Canada's, in which choice will be further limited and innovation discouraged. Obama constantly says you will be able to keep the insurance you have, but not if your employer decides not to offer it any more and to offload you onto the government plan.
Polling shows that most Americans are happy with the health insurance they have. One reason is that they have, in economist Albert Hirschman's phrase, the option of exit. Most Americans choose health-insurance policies every year, and if we don't like our current plan, we can exit from it and choose another.
Government insurance will tend to close off the option of exit, trapping you in a system that is sure to be riddled with unanticipated consequences. Those cost you money when, as a taxpayer, you have to pay for the unanticipated cost of Cash for Clunkers. Unintended consequences can cost you far more when, as a patient, you need medical treatment and care.
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