A few days ago a post I wrote included what was really a throw away line, "Buying America's assets and scrapping them in order to spend money borrowed from our grandchildren to replace them will go down in the history books as one of the dumbest ideas ever." Let's review the Cash For Clunkers program so far – almost $.8 billion gone – $2.2 billion yet to go - to see if that line still fits.
Toyota has surged ahead of Ford for the top spot in cars being purchased with the cash we taxpayers gave them for their clunkers. The top ten list in order is now: (1) Toyota Corolla (2) Ford Focus FWD (3) Honda Civic (4)Toyota Prius (5) Toyota Camry (6)Hyundai Elantra (7) Ford Escape FWD (8) Dodge Caliber (9) Honda Fit (10) Chevrolet Cobalt. Toyota is still the big winner with 3 of the top 5. GM still remains in the top 10 by the skin of its teeth.
Since Toyota has still not laid off a single American employee (just a few hundred temps in Texas so far), the purchase of Toyotas will generate zero jobs. In fact, the entire program is generating no jobs – and is very unlikely to. Many of the purchases so far seem to be people who were going to buy a car anyway - so the taxpayers subsidized them to no one's advantage but their own.
The actual increase is most likely from people who would have bought a car later in the year, and simply moved their purchase up a few months to take advantage of the program. That means today's increase will directly correspond to next month's decrease – so all we have done is interrupt the relatively level load of the factories with a costly blip. At least that is what the automakers believe. They have switched to 10 hour days to meet the surge with overtime, rather than recall laid off employees. They fear a trough in demand once the program runs out and they do not want to re-layoff people.
In the height of irony, at least one dealer, a guy named Richard Bazzy from Pittsburgh thinks lean is responsible for the problems he is facing in getting enough cars to sell. "He says the company's new system to keep inventory lean isn't working. 'You've got to get these cars built,' he said." The true lean company – Toyota – is the one that kept all of the people on the payroll and is not facing this recall versus overtime dilemma. But he is far from the only one to think lean means nothing more than keeping less inventory. Nor is he the only one who thinks the manufacturers would be better off keeping a glut of inventory on hand – and eating all of that wasted expense – just in case Congress throws another counter-productive stimulus plan at the industry. Like Kevin said the other day, Mr. Bazzy works in a top line obsessed industry.
The charities are complaining – the government is paying $4,500 for cars many people would have otherwise donated to charity for the tax write off. The supply of donated cars is drying up. So the net effect is that the government is taking cars from people who could only afford a charity fixer-upper, and giving the money to someone who can afford a new car. One of those 'unintended consequences', I suppose.
The dealers are running into cash flow problems as a result of having to provide zero interest loans to the US government for an undetermined period of time:
"Despite the sales success of the program, little of the federal money has made it to dealers so far. Springer of Anderson Ford said he hasn't seen 1 cent yet. 'Right now it's a dealer program, not a government program,' he said. Williamson Honda's Olsen had 110 completed cash-for-clunkers deals as of Wednesday morning — only three of which had been approved by the government. Waiting to get reimbursed, he said, has 'been a little bit unnerving.' But Olsen thinks things will move more smoothly now that the additional $2 billion has been approved. Ballard of Performance Toyota is a little less sure. Like Williamson, Performance has made more than 100 clunker deals and has been reimbursed for very few."
So no new jobs, factories working overtime despite an overall drop in business of 25% to handle a government initiative to move car purchases up a few months, charities out of luck, dealers footing the bill … I think I will stand by my assertion – this is a real dumb idea.
Apparently Debbie Stabenow, Democratic Senator from Michigan disagrees with my take on things. She called Cash For clunkers "the most effective stimulus we have passed this year." Or maybe she agrees, and is merely commenting on what a waste the rest of the trillion dollars in stimulus smoke and pork spent this year has been.