…kill GM and Chrysler? Not single handedly, but it may have proven the fatal blow. Between that, and the fact that so many consider them Government Motors, and run by union thugs, they may never recover. The question is, what does the administration come up with next to punish Ford and level the playing field?
[Update a few minutes later]
More thoughts from Mickey:
…they seem to have grossly misperceived consumers’ reaction to the equities of the bailout itself. And that 45% can’t be all Republicans.
Nope.
I also have to say that this saddens me immensely, having come from a GM family (and having a brother who still works there). If they do go under, I hope that someone can take the assets and do something more productive with them. But that might also require an overhaul of the government in Lansing, and I’m not sure what the prospects are for that.
[Update mid morning]
Speaking of my last point: Michigan’s budget train wreck. And to think that some people a few years ago (and maybe even now) were bewailing that pesky Constitution that didn’t permit darling Jennifer to run for president.
Nearly 690,000 vehicles were destroyed by cash for clunkers. The top three most traded in vehicles:
1. Ford Explorer 4WD
2. Ford F150 Pickup 2WD
3. Jeep Grand Cherokee 4WD
The top 3 purchased as a result:
1. Toyota Corolla
2. Honda Civic
3. Toyota Camry
Toyota got nearly 20% of the c4c money. Any money that could have been made off of replacement parts for these 690,000 American made vehicles has flown out the broken window too. A large portion of the c4c money went over seas. At least the wages were paid to North American workers since these vehicles were for the most part assembled here in the U.S. or Canada.
I can still see the gov’t trying to say this was a success since the average MPG of new vehicles purchased over the year has increased.
In fact it was very harmful and bankrupted a number of smaller tier 3 and 4 auto suppliers.
The supply chain had shed capacity and adapted to the lower rate of production. So when the sudden bulge in orders was pushed down onto the suppliers, they had to find raw materials like steel at high spot prices, pay for expeditied shipment, pay for overtime shifts and hire temp workers.
Not only did this mean that they made no profit on the increased production, but it created cash flow problems. The workers had to be paid immediately, but the auto companies are not paying their bills for 60-90 days or more.
I know of one company that retrieved their tooling from a bankrupt supplier and placed it with another firm, only to have that one go under 3 weeks later, in the middle of the cash-for-clunkers “boom”.
Any money that could have been made off of replacement parts for these 690,000 American made vehicles has flown out the broken window too.
Many of those 690,000 vehicles were still in good condition. They could’ve provided service to a lot of people who couldn’t afford to buy a new car even with the CFC discount. Instead, those cars were destroyed. I’ve read that likely drove up the the cost of used cars, further hurting the working poor.
This is what happens when you have economists pretend to be marketers.
As long as economists continue to assume consumers are interchangeable with identical tastes and assume perfect substitution in terms of products you will get bad policies like this and the bank bailout. That is why we are heading for a “double dip” recession although in reality the only “recovery” has been on Wall Street where banks had to do something with the money they got from TARP.
This is what happens when you have economists pretend to be marketers.
More to the point, this is what happens when you leftist, socialist politicians pretend to be economists.
As already said, it helped reduce oil consumption. Vehicles are not “destroyed” they are recycled. You can probably make two sedans with the metal from one of these cars.
“Vehicles are not “destroyed” they are recycled.”
Oh really? I’m going to go look for my instant recycle button on my car right now. I wonder what it will magically fold itself up into? Hopefully a Smart for 2. I have a polar bear bumper sticker ready to put on the back and everything.
Just google “vehicle recycling percentage” and you will find 95% of vehicles in the United States are recycled. 84% of the vehicle by weight is is recycled.
Just google “vehicle recycling percentage” and you will find 95% of vehicles in the United States are recycled. 84% of the vehicle by weight is is recycled.
You keep saying that as though it has any economic relevance to the discussion. The fact remains that wealth was, on net, destroyed by Cash for Clunkers. And by increasing the cost of used cars and their parts, it made poor people even more poor.
Rand: Wealth gets destroyed all the time. Communists love to point out that diamond rings are a waste of resources.
Wealth gets destroyed all the time.
So? What’s your point?
That doesn’t make it a good thing, or something to be done deliberately as a matter of government policy.
Communists love to point out that diamond rings are a waste of resources.
I fail to see the relevance of this comment, even if I cared what Communists love to point out.
Christ, God, why don’t you google “price of used 2005 Ford Explorer 4WD” and then “price of 2 tons of scrap steel” and then subtract.
Not all the people who applied for cash for clunkers would have avoided buying a new car. If people do not buy more GM cars it is because they do not like them. Perhaps GM should have kept up with the times instead of trying to sell the tired same old products.
I am not going to employ the broken window fallacy to support my argument. I think the transportation sector needs to do the natural move to low consumption vehicles, one reason why other G8 countries have better energy efficiency than the US. I see this as little different to providing aid for hybrid vehicles. In fact this is less market distorting than such measures providing the same gains.
I am not going to employ the broken window fallacy to support my argument.
Well, that’s a relief.
I think the transportation sector needs to do the natural move to low consumption vehicles, one reason why other G8 countries have better energy efficiency than the US.
If it was a “natural move” it would already be doing it. That the government has to force it to do so is a good indicator that it’s highly unnatural.
Carl Pham: Wikipedia states it is the 1998 model Ford Explorer 4WD which tops the list. Not the 2005 Ford Explorer 4WD. If their car was worth that much they would not trade it for the pittance provided by cash for clunkers.
One sliver of economic light is that comparing this Sep to Last sep is misleading. Last sep was before the bottom really fell out of the economy, and loan money for cars disapeared.
Still a cash for clunkers program demanding Americans buy comparativly unpopular low fuel consumption cars, while dumping and scraping older but highly popular US cars (the Ford explorer and F-150 have been the best selling cars over the last couple decades), pulls these cars out of the used car market, pushs americans to go more into debt, and undercuts American car companies.
So whose side were the writers of this bill on?
Cash for clunkers did not help the car industry or the environment. All it did was destroy almost 700,000 running vehicles many in good shape. Because of this used car prices have soared and auto repair shops and car donation have suffered.
Godzilla,
In terms of saving energy, it is hard to imagine how destroying 690,000 vehicles, taking the wreckage and recycling it (which, unless you know of some magical unicorn farts that turn scrap metal into cars, takes energy), and then transporting the components created from this recycled material actually saves energy over keeping the cars where they were in the first place. Most studies have shown that the cars actually traded in were in fact second-vehicles which were used less than the vechicles that they are replaced by, which might even lead to increased energy consumption in some scenarios.
As for the GM failing because they didn’t build cars Americans wanted, this hardly explains why Ford (which last year was in the same mess that GM was, but did NOT take federal money) only has lost 5% of its sales, why GM has lost 45%. Ford has not made hugely significant changes to their production models (they have some interesting options due out soon, however). One has to wonder how GM (which was on the edge of bankruptcy last September, to the point that they took bailout money) was able to lose another 45% of their sales year over year?
Finally, the other G8 nations are often more ‘efficient’ in terms of transport because they are SMALLER, and hence do not require the same amount of transportation that we do here in the states. When I lived in Dallas, I routinely travelled 30 miles each way to work, something that is extremely rare in most of Europe. The US is larger, far more spread out, and very mobile to boot, all of which give us a lifestyle that is very different than our European cousins. Suggesting that this is just because we like larger cars is simply nonsensical, and ignores the very real differences between our societies…
Didn’t help the environment? Hmmm… The top 3 trade-ins were 2-ton monstrosities and the top 3 replacements were relatively small, fuel-efficient sedans. Sounds good to me. Of course, making a car costs fuel – but as someone else said, a lot of the steel used to make cars is scrap – much more economical than making it from scratch.
Using less fuel has to be a net gain to the American economy as a whole, because the USA is a net importer of oil and therefore reducing oil imports reduces the balance of payments deficit.
GM and Chrysler lost heavily and are probably going to go bankrupt because they make unreliable, inefficient junk that even Americans tend not to want to buy – and make them extremely inefficiently as well. In addition, GM could have helped themselves by importing desirable cars made by European subsidiaries of GM (such as Vauxhall and Opel). Why didn’t they?
Maybe when they both go bust more efficient companies, with less union baggage, will take over the plants. That’s what is supposed to happen under capitalism, after all.
To repeat; the C4C program has undermined American car companies. Whose fault is that?
Fletcher, you are simply arm-waving away the real costs involved with recycling the cars. Yes there is some gain with recycling the steel (which is done anyway, a previous poster pointed out that about 95% of the steel in any new car is recycled…the same cannot be said about plastics, etc.), but these are cars that did not have to be built in the first place, thus we have EXTRA consumption which adds to cost. More to the point, the greater mileage on makes a difference if the car is heavily used (most of these aren’t), which would allow the lower lifetime consumption to compensate for production costs. Most analysis here shows that for CfC, this is not the case.
As for the balance of payments gain, we are talking about round-off error here. 690,000 cars (many of which were not heavily driven in recent years) involve replacement costs, transport costs, etc. all of which swamp any real gains resulting from improved mileage (see above). Even if the gain were linear (i.e. a 1:1 swap with no transaction costs), we are looking about (roughly) 1/2 of 1% in total savings on gasoline, which is hardly worth the costs of the program itself.
As for why GM didn’t use imports from Euro subsidiaries, they did. Look at Saturn (you know, the division that they just shut down?), its product line was almost entirely composed of Opel retreads, and they were not terribly popular.
I agree with you that CfC has undermined American manufacturers, and that the proper route here is to let the weak die off and a reorganized (or simply liquidated) GM return to the market without excessive baggage (bad management or bad unions, plenty of blame to go around) as capitalism is supposed to work.
The real mistake was interfering in the market in the first place, it is hard to find a better example of this than the debacle we are witnessing.