Four Perspectives on Making Sense of the Senseless
The following four perspectives are based upon the mental notions of reasonable persons who read and try to understand Washington’s Cash for Clunkers. The amounts of taxpayer funds are large enough to get the attention of those who ever purchased or might want to purchase a new car. Reading the provisions of the proposed bill and accepting that our president is about to sign it into federal law, it makes sense to try to understand the different viewpoints of the various groups with a vested interest in the proposed law.
These four groups are as follows:
1. The government
2. The car buyer under the law
3. The automobile dealers, and
4. The taxpayer who foots the final bill.
The Government Perspective
The bill and its detailed specifications remind me of the horse that was put together by a committee. It ended up a camel. For committee work in government, a camel could be considered a roaring success.
The idea undoubtedly originated from an environmentalist, whose primary concern is to mitigate (look it up) a world catastrophe, global warming. This catastrophe is predicted to strike the earth promptly within the next hundred years of so. So here we have a catastrophe looming within the next hundred or thousand years, maybe, and we are diverted from the here and now recession of unemployment, business failure, and soup kitchens to deal with an event in somebody’s imagination a hundred years in the future. Really smart!
A trade-in of an old model gas guzzler (18 mpg or less) is now worth $3500 – $4500 on the purchase of a new car with 2 to 10 greater miles per gallon. The clunker will be shredded and recycled, costing somebody a small pile of money. The auto dealer will calculate exactly how much your clunker is worth, shredded, on his new car. If you qualify the government will issue a credit to the car dealer. On paper, this will reduce what you owe on the car, lowering your payments, and increasing your mpg by at least two or more miles per gallon.
While there is an environmentalist’s smell to the bill’s qualifications, the primary motivation is clearly a taxpayer subsidy to purchase a new car manufactured by the government. It is really simply more stimulus money carved our of already massive debt designed to get the current recession from going further south. With stimulus money, of course, the government has no concern for the long-term cost or other consequences.
“Damn the torpedoes, full speed ahead” is an old sea captain’s philosophy. A billion here, or maybe four billion is really just chump change. It will stimulate the purchase of up to a million government cars.
The Democrats in government believe that a subsidy is just like priming a pump. Prime it once, and it pumps on its own forever. This, of course, is not true. The taxpayer is working the handle, and once he stops pumping, he has to prime it again. Taxpayers are already paying a continuous subsidy to those who grow corn and manufacture ethanol, the savior of the renewable world.
Hello! America. Are you awake? OK! You are awake. But are you listening?
Finally the government believes they are helping the poor buy new cars. As one astute blogger stated, folks who are driving old clunkers are those who can afford old clunkers. In the name of marginal improvements in mileage, they are being encouraged to buy new, and expensive cars, assume substantial payments they did not previously have. As soon as their mortgage is ‘under water’ (the second they drive the car off the lot), they will be entitled to a cram down of their principle from their lender. After months of negotiation, while they drive a new car free of charge, they will go belly up and the government will own both the car and the worthless papers. Under water in government and media double-talk is another term for empathy, bail out, and big brother to the rescue. Shades of Barney Frank!
Car Buyer’s Perspective
Americans live with their cars, which is why so many own two. Unlike in Europe where you can drive across five countries in a single day, Americans can spend two days driving across Texas, or trying to get out of Florida or California. By nature Americans are always looking for a bargain, the best price available, a discount coupon, or a leg-up in negotiating. Four thousand five hundred dollars gets their attention, and the wheels start turning.
For the seriously cost conscious, the old clunkers are the single most important way to keep the cost of living down. With a little nourishment old cars will last forever, they do not depreciate, and there are no car payments. What better way to live within a tight budget. Most all folks know this by simply growing up in America. Most Americans grow up poor, and through hard work survive into retirement and newer cars.
Financially bright Americans would refuse the thought of ever buying a new car because of depreciation. A $20,000 car purchased new is worth $15,000 the moment it is driven off the car dealer’s lot. The vast majority drive off with 80% in a mortgage and interest of eight percent annually in addition to that. The average new car purchase loses $5,000 the first day, then makes interest payments of another $5,000 during the life of the mortgage. Payments of $400 per month for five years is the minimum cost of owning a new car.
It would be nice if the $10,000 in immediate and long-term costs was actually reduced by $3500 or $4500. This discount coupon is only one bargaining chip in a tedious and painful process known as negotiating the purchase of a new car. Car dealers are the experts in this process, and the purchaser is walking into a lion’s den without any weapons.
You think the coupon is actually worth $3500? Read on, McDuff.
Car Dealer’s Perspective
I would prefer a rectal exam to visiting a new car dealer. The rectal exam will be over in ten seconds, while the pain of buying a new car starts immediately, and lasts for years. There is an immediate $5,000 loss from depreciation, and a long-term obligation of another $5,000 in interest payments alone. Principle and insurance are on top of that.
The original GM credit card set up exactly the right kind of customer negotiations with each car dealer. The government could take a lesson setting up the Cash for Clunkers law if they simply paid attention. Unfortunately, the government lawmakers are in bed with car manufacturers, car dealers, and a small army of DC lobbyists, who will write the final wording of the bill, and the car buyer will have no say in the process. These are our elected representatives at work.
For every dollar of purchase, the GM credit card holder received a full 5% (nickel) return toward the purchase of a new GM car at some time in the future. These nickels accumulated over all purchases and become a full ‘discount’ at new car buying time.
The rules for using the card discount were simple and straight forward. Contact any GM dealer and negotiate the best price on the car of your dreams. Just before you sign the papers you add:
“Oh! I almost forgot my GM credit card earnings. Take that amount directly off the agreed price of this purchase.” And that is the way it worked. Neither the dealer, the sales supervisor, now the salesman could use the GM card discount as a bargaining chip to fatten their own pockets.
Unfortunately the words in the Cash for Clunkers bill will be written by your elected representatives. They will receive great ‘assistance’ from NADA, Chrysler, Government Motors, Ford, the Federal Reserve, the U.S. Treasury, and all of the banks who need or need not government ‘assistance’. Everybody, including environmentalists, will have a mighty hand in selecting ‘the words’, as Chris Dodd says, in writing the final bill.
As an amendment to the Defense Department bill, Cash for Clunkers will be buried within a 3,000 page document that nobody reads. It will be signed by Obama and become law without as much as an open debate in our congress. It will be administered directly by automobile dealers, who will use the discount to finagle as much of the money as possible, as though it is a gift to whoever can write the most deceptive and confusing contract.
Hello! What exactly will a $3500 discount be worth when it is processed, validated, and then negotiated by an auto dealer?
It is all simply a government subsidy to government motors. If it stimulates more sales, only the taxpayer will bear the ultimate cost.
Tax Payer’s Perspective
In the final analysis it seems the taxpayer is the only one with a serious interest in the way others are spending his money. In the final analysis he is the only one who is stuck with the consequences both short and long term. There are many.
Crunching the numbers from shredding a million guzzlers, one perspective is exactly how much this will save us from global warming 100 years from now. Accepting the average person drives 7500 miles a year, the 2 mpg savings reduces annual gasoline consumption by 41 gallons. This saves the new car buyer $114 a year at $2.75 a gallon. Remember, however, he is now paying $300 to $500 per month in new car payments. His gas savings reduces his monthly costs by $9.50, and his payments go down from $450.00 to $440.50 each month. Whoop de do!! The car buyer really makes out on this deal!
The net effect of this one million (or four million) cars purchased is a savings of 41 million gallons of gasoline. That sounds like a lot of gasoline! As they say on the TV ads: “But wait!” what kind of impact does that have on global warming? Forty-one million gallons of gas (saved) is almost exactly 12% of a single day’s consumption in the United States, ignoring all the many millions of cars operated all over the world.
A 12% savings of a single day is a small fraction of one of our 365 days. The annual savings in gasoline consumption is 0.000326485, give or take a hair. Selecting words, as Chris Dodd likes to do, this savings is 3 ten-thousandths of one percent savings in gasoline consumption in a year.
While environmentalists might agree that this is not much of a savings, their immediate response would be to think how much would be saved in a hundred years. Environmentalists love to raise the tide by spitting in the ocean. Just imagine how much we could raise the level of the oceans if we all spit at the same time! Forever! Hello: Start spitting, everybody.
Where the taxpayer really gets burned is when he figures how much this single government subsidy is costing him, personally, to help a poor person buy a new car. First, this will not help poor people, as most of the brighter ones know better than to buy new cars. Those who are suckered into signing a contract for five years are no different from those who signed sub-prime loans they could not afford, and here we go again. Then the banks will be asked to cram-down their loans, taking another loss for the government, and be blamed for their own greed. All the while, the buyer is suckered into buying a new car. It is happening now all over the country in the continuing housing crisis.
Let’s see! The current crisis was originated by congress who convinced poor folks to buy homes they could not afford. To avoid evicting them, let’s now leave them in their homes. The government can charge them rent for the houses they could not afford. This rent money will disappear into the taxpayers black hole now in Washington, just like the Social Security Trust Fund.
Then we can do the same thing again with automobile purchases. No more repossessions. No more car payments. Just new cars for everybody!!!
Finally we can cram health insurance into overhead of every business in the country. Thanks, Walmart! As large and small businesses close their doors, the slow migration of insurers from private to government insurance is assured. This will destroy 150 million happy folks with private insurance today in order to give free health coverage to an additional 10 million folks (of the 30 million) who are currently uninsured.
We have not even begun to consider how much additional government revenue will be generated through cap and trade and new energy legislation.
Hurry up Washington, before the crisis ends! Is it possible to bankrupt the country in the first six months of change we can believe in? As Sarah Palin would say “You betcha!” And not a single legislator in Washington has the guts to pull the rug out from under Obama’s unelected czars who are stuffing the laws with amendments that nobody reads.
Welcome to America. It has already been rebuilt, brick by brick, and the unsustainable debt we have authorized in the last six months will carry America to her grave.
Obama has already cooked America’s goose through signing bills that nobody has read. While the legislature’s approval ratings can go no lower, we now have another layer of unelected czars pulling the strings in Washington. Nobody has the guts to blow the whistle on Obama and his unelected henchmen.
Unfortunately, Eric Holder was right! The most powerful and almighty officials in Washington represent our nation of cowards. Not a one of them will as much as lift a finger.
As one of the powerless, I know exactly which finger to lift!!!
And what is Washington’s next project? How about giving $16,000 to every individual who might want to buy a home, at government expense, of course? Those few folks who still report income and pay taxes will pay the Piper dearly.