Cash for... Crunch

Obama launched what was supposed to be a 3 month program of $1 billions called Cash for Clunkers. The program encouraged those with older vehicles that got less than 30 mpg to trade them in for a $4500 credit towards a new vehicle that was more fuel efficient.

Great in theory, not so great in planning. $1 billion for 3 months. If we assume that none of the $1 billion went towards administrative costs (however unlikely), and if we assume our consumers are savvy and are only buying replacementt vehicles that qualify for the full $4500, that means the money would only be able to fund the first 222,222 trade-ins.

If we assume that this incentive encourages car buying back to the good times, we can see that for instance in 2005, 17 million vehicles were purchased. Ok let's assume a generous half were used vehicles. That's still 8.5 million new vehicles purchased. That (straight) averages to ~710k/ month. Which means that even for one month, Obama set aside money for 1/3rd of vehicle purchases. And he thought this would eventually last for 3 months?? Of course I'm also assuming that most new vehicle purchases are also replacement vehicles.

The reason this program is on my mind today: my family had an old 1995 Nissan Quest. It was old, the a/c no longer worked, I actually first learned to drive in that car. It very clearly qualified for the Cash for Clunkers program. My dad was thinking about trading it in for a Lexus IS or a BMW X3 (which surprisingly was fuel efficient forthright program, another shock and peeve of mine in the program. If you're going to incent people to buy "fuel efficient" vehicles, at least raise the mpg bar to like 35 or 40 mpg.) In the end, my dad decided not to trade the van in. It was old, but was still functioning beautifully. It was great for moving things around. It drove fine in cold and rain. My dad figured it was smarter to keep the van for another 2 years instead of making car payments on a new car. Fine.

Cash for Clunkers ended yesterday (two months early). This morning, my dad fot rear-ended in the Somerville Circle. The driver behind him wasn't paying attention and drove into the back. My dad's fine, no aches and pains. But the van didn't fair as well. The entire back hatch door has been pushed into the car. The side door is jammed. It's now literally a clunker. And by clunker, I really mean a junker.

I guess we had made the wrong assumption that we'd be able to keep the van around for another 2 years.


-- Post From My iPhone