Return of Cash For Clunkers

Oh, yes, since the first one was such a success, I guess we need to bring it back. 

Edmunds.com, a 45 year old trade magazine company that provides automotive information, posted a Department of Energy document listing the department's funding highlights. The proposed Obama Budget, changes the existing $7,500 electric vehicle tax credit “into a rebate that will be available to all consumers immediately at the point of sale.”

According to Senator Stabenow's website, her proposed legislation, known as the "Charging America Forward Act" (S.298), "will provide consumers with a rebate worth up to $7500 for plug-in electric vehicles at the time of purchase."

Essentially, if one were to buy a $41,000 Chevy Volt, the buyer gets a $7,500 coupon, so the final price is $33,500. In the end, the auto dealer assumes the risk of the government giving them this tax credit.

This new program only benefits the government owned GM, who's all in support of this bill. I'm not sure what the full follow-up to the first cash for clunkers program but, all the reports I saw (and the ones I can still find), indicate that dealers were not getting paid, at least not in a timely manner. 

The program began on July 24th with a budget of $1 billion and by July 30th they were out of money. Giving people “free” money to buy cars is definitely popular. Congress then allocated another $2 billion that lasted almost until the end of August. That’s right, $3 billion in under a month. The program didn’t help the economy or auto industry. Despite a bump in the 3rd quarter to GDP and auto sales, consumer spending dropped 0.5% in September and the vehicle output bump was artificial and unsustainable, meaning it will drop off considerably in the next quarter as the market stabilizes to its real level. As Nick Gillespie and Veronique de Rugy pointed out today over at Reason, even the reported GDP bump is misleading, because is includes government spending. So if government spending increases it will increase the GDP, but that doesn’t mean any more was produced.

There are also the unseen costs of this program. By encouraging people to junk older vehicles, they lowered the supply of cheap used cars. When you lower supply and keep demand stable, the price goes up. With fewer used cars on the market, the prices for remaining used cars increases. This will make it more difficult for younger drivers or low income drivers to buy cars to get to work or school. (A video by Congressman Ron Paul further explains how it hurts the poor here.) At least the wealthy got a handout to buy their brand new cars though right?

Yeah, I can't wait to plug my vehicle in. 

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