Tuesday, August 4, 2009

Cash for clunkers

What kind of a scam is this? Do you think it has anything with the government trying to create artificial demand for their failing companies- Government motors and Chrysler? They sunk billions into those ratholes and now they have to pay people to buy their products? Does a one time stimulus actually create any lasting benefit to the economy? Remember the stimulus checks that went out last year for 160 Billion that was supposed to create 400,000 new jobs? That was a huge success wasn't it.
How does the government stealing money from me to give to somebody else to buy an overpriced car help the economy or create jobs? Do you know because I sure can't figure out the logic of that.
We are in this mess, due in a large part to living beyond our means and incurring to much debt. Buying a new car to replace a paid for car with debt is flat out stupid! Especially when the new car immediately starts to decrease in value, meaning you are paying interest on something that is worth less (eventually worthless) every day.
I have bought two brand new cars in my life. The first was a 99 Isuzu Rodeo 4x4 suv. I put $4000 down and financed the rest at a pretty low rate(don't remember what it was) with payments of $1000 per month for 24 months.
Purchase price was $27,500. I sold the car in perfect condition with low mileage in late 2003 for $12,000. So in about 4 1/2 years the value declined by $15,500. Was that a good investment? Hardly. But I got to drive around in new car for awhile(about 6 months) Don't forget the cost of insurance during those 4 1/2 years.
The story continues. I moved to Florida and bought a 2000 chevy venture van for exactly $12,000. And then the state of Florida ripped me off and charged me $840 sales tax for the privilege of buying a used car in their state. Still have the van which is probably worth $2500 now. So since 1999 my $27,500 turned into $2500. Great deal right? That really helped the economy didn't it? $25,000 up in smoke. Created lots of jobs huh?
And now the government wants to bribe me into going through this wealth liquidating procedure all over again? Buy a new car and incur a lot of debt at higher interest rates and pay a huge new sales tax. $27,500 x .07% =$1925 or a big chunk of the value of the vehicle I am currently driving. So I get a $4000 incentive on the front end and immediately lose half of that in taxes. And the day I drive off the lot I lose another $2k minimum in resale value.
This is a completely stupid idea for the consumer to get involved in.
And now think of the jobs it vaporizes.
An older car requires more parts and maintenance than a new car(hopefully, but who knows what government built cars will be like) and requires companies to produce those parts and mechanics to install them. What happens to them when demand for those parts and services decreases? Maybe some job losses???
The inventories of new cars are at record levels. The cars have already been built. Creating a program to artificially boost demand for some of that inventory has no lasting power in creating long term demand. This government swindle will create no new jobs- only job losses. And since this new "free" government money has to be stolen, borrowed or merely printed the costs will hit everybody in the form of inflation. And the new owner gets saddled with new debt with an underlying depreciating liability.
One more point although there are many other sides to this issue. Toyota, a Japanese company sells more cars in the world than anybody. I haven't heard that any brand of cars were forbidden from getting rebates. If that is the case a big chunk of these billions goes to Japan.
Who wins here?

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