T Nation

Cash for Clunkers - A New Bubble?


So, with the cash for clunkers program increased now to 5 billion, have we just created a new short term bubble which will wreck auto makers and dealers across the country? 5 Billion divided by 4500 is approx 1 million cars which have been scrapped and new cars bought.

However, out of those 1 million car sales, how many of them were scrapped and upgraded before the normal useful life of the car? I mean say you have a person who normally would have used his car for another year, yet due to the pressure of getting into the money available right away, he scraps it for a new car now. The car still had a useful year left on it but it's going to be scrapped.

Also a huge number of people maybe a half a million, who would have likley bought a car next year, now won't be. AND add to that, if you didn't participate in the cash for clunkers program, likley your car is not a clunker and has more than a years worth of reliable life to it, so you won't be buying a new car next year either.

I see the dealerships and the automakers hitting a high note this fall with thier earnings and profits and then tanking ALL of next year, AFTER they ramp up production, hire new people, etc... Basically, I think that what this program will do to an already beaten down industry, is finally put the death blow on the majority of it. Buy auto maker stock right now, it will see a bump, and then this winter, Short the hell out of it.



Interesting. You might be right.

The only thought I have is that many of the people who take advantage of the program might not have bought cars next year anyway, or at least might not have bought new cars. Perhaps those people would have bought cars next year, but would have bought used cars. If that's the case, then it's really the used car market that's taking the hit, not the automotive industry itself. Anyway this seems to be partly the case, because used car dealers are already complaining about a drop in sales.

My guess is something a little tamer than yours. Although this program might help a million new car sales, I doubt it's going to actually create a million new cars sales where there were none before. In other words some of the people taking advantage of the program would have bought new cars anyway. When you couple that with the fact that many of the people buying new cars through the program who wouldn't have otherwise bought a new car wouldn't be buying a new car next year anyway (or ever?), the drop in sales next year probably won't be that bad. Of course it will drop off a lot compared to this year, but if the car sales in 2010 would have been X had the government not done cash for clunkers, I doubt the program will cause car sales in 2010 to be half of X, or something like that.

Anyway... I'm just rambling. You might be right. There are lots of factors though.


I for one am thrilled that a portion of my tax dollars is being given to people to help them buy a new car!

Anyway...I contend that this sort of thing is the beginning of a GAI (Guaranteed Annual Income) program for all Americans. Severe price controls will be enacted on basics (food, housing) with forced production of same. Its only logical.

"The Labor Department doesn't track anyone who has moved beyond 26 weeks of unemployment in its weekly data on continuing claims (the number of people who request benefits after their first week). And, said Stella Cromartie, spokeswoman for the Bureau of Labor Statistics, said the agency does not currently have plans to begin tracking this population.

As a result, by late summer the government may begin reporting significant declines in continuing filers. But it won't be cause for celebration. Instead of of indicating that the economy is on the rebound, it could mean that more people are falling off the radar."


With millions on the unemployment rolls, no prospect of jobs, and benefits becoming exhausted, look for THIS to be Obama's next baby.


I see a lot of good used cars going to waste, one guy I work with is trading in his Ford Explorer that has 130K on it. He's fastidious about the car, it runs like new and is immaculate. The reality is that he might get $3000 on a private sale or $1000 on a straight up trade in. Anyone could get another 3 years out of this car.

If you're on the fence about buying a new car, it can be a powerful incentive and the dealers are hot to move inventory, especially dealers that are either going to close or are in danger of closing.

I'd call it a bubble since sales will trail off once the deal times out. They should have made a lesser deal on used cars, maybe $2000 on cars up to 5 years old. I know that dealers have loads of used cars that they'd like to move. Most will wholesale cars right after a trade but will keep ones that are in pristine condition and a few years old.

The reality of economic bubbles is that often you don't know they're there until they pop. But with all the crap going on in the economy for the last few years, we're all more tuned into what's going on.



I am just waiting for all those people who will default on their new car loan with Cash for Suckers. In certain ways, this sounds alot like the housing mess and how lenders gave loans to anyone who wanted one without proper verification of whether they could afford it or not. There was a 20/20 episode where they looked into the housing mess, and investigated different stories where people got loans and lost their home.

One guy, an illegal alien from Mexico, got a 600k loan, and does not speak English. Imagine that, he admitted he wasn't sure what paperwork he was signing, just that he was promised this loan that would get him the house he wanted. I would not be shocked if people of similar responsibility would engage in this Cash for Clunker bullshit.


Just what we need. More debt. More expensive used cars.


Yes, a bubble but it's really tiny. As soon as the cash is gone so is the bubble. I really hope car makers aren't thinking this will last.


It is basically the broken window fallacy on a very grand scale.


I believe you may be right, I hope they do not continue this policy. There has been a small up side to this though




2% increase in sales of Japaneese cars for 5 Billion.

People are getting into debt with this program, and my taxes paid for them to get into debt. Rediculous!


Yes, the rational business men who presumably read the newspaper are delusional enough to think that a ~$5 billion program is going to last forever. Seems like people are rational when you want them to be and irrational when you want them to be. This will probably serve mainly to clear out inventories.

Furthermore, the age of the average car on the road right now is almost 10 years. There aren't a lot of new cars being scrapped.


Uh-oh, we wouldn't people in this country to get into any debt!

Wars in two countries, tax giveaways to the rich, handouts to pharmaceutical companies, no problem, but $5 billion for new cars?! Tyranny! Raaaaa!


Rock brings up a good point (other than taking our tax money for this.) Most people I know would not bother buying an American car, because they cannot compete in quality with Japanese or German cars This idea of $4500 for a car might look more appealing if it was limited to American cars, but then people would scream that the government would be telling you which car to buy.


I'm not seeing many new American cars in SoCal. Are you? Amongst the pseudo-riches in Los Angeles, everyone tends to purchase a BMW, Mercedes, or Lexus.


Ya we should make it so you can only use the money to buy american cars. That way we can recoup some of our investment in GM and crystler. That way we can have the government subsidize the goverment!


You have a point but how large does that straw that finally breaks the camels back actually have to be?


Awesome, high five!


I was listening to the radio a few days ago and they were talking about how C4C has fucked over a lot of those charities that take used cars. I know here we've got the Idaho Youth Ranch that does it and no one is giving them any cars this year because they're trading them in to this program. These charities have been hit pretty hard over this.



They've done much dumber things, that's for sure.