Monday, November 02, 2009

Cash for Clunkers: Here Comes The Hangover

"Cash for clunkers" might have "juiced up" new vehicle sales and provided some initial and temporary stimulus to the economy, but there are some secondary costs now surfacing in the "hangover" period:

1. Shortage of cheap used vehicles and rising prices (see chart above).

In his 20 years in the business, salesman Mark Sauer has never had a tougher time finding inexpensive used cars. "It's never been this bad," said Sauer, buyer and sales manager of Vaccaro's Auto Buyers of Reading, PA. "Customers used to be able to find a good car for their son or daughter to take to college for $2,000 or $3,000, but now that same car may cost $5,000," said another dealer. "It's sad."

2. Some small car dealers are now going out of business.

Having the toughest time, though, are smaller dealers who focus on vehicles in the low-price to midprice range, and some have closed as a result, according to the Pennsylvania Independent Automobile Dealers Association.

3. Financing issues resulting from the rising prices.

Another problem is that used-vehicle prices have quickly risen above their book values, making it tougher for customers to secure financing.


7 Comments:

At 11/02/2009 11:21 AM, Anonymous Hal (GT) said...

I'd been wondering about the effect on used cars. Thanks for the info and finding the graph. I'm seeing the same thing price wise locally myself.

 
At 11/02/2009 11:46 AM, Blogger Colin said...

So Cash for Clunkers is making affordable cars more difficult to find. More proof that the best friend of the poor is free markets rather than big government.

 
At 11/02/2009 12:03 PM, Blogger Michael said...

I have a 94 Explorer (POS Model) that KKB valued at $400 in the spring. They now value it at $1,500.

The car has other non cash value though. Friends and family can use the vehicle to haul plants and landscaping and other home improvement products without getting their new cars dirty. I also let some local non profit groups use it to save money.

I don't run a repair garage but do all my own auto work. Since cash for clunkers I've had 5 people bring late 80s to early 90s cars to me for work.

 
At 11/02/2009 12:17 PM, Blogger spencer said...

Cash for clunkers ran from june till
august.

But here is what happened to the Manhime used vehicle index.

monthly % change
annual rate

jan...3.78
feb...3.74
mar...0.57
apr...0.47
may...2.35
jun...4.58
jul...1.14
aug...0.87

so that is a 8.56% gain from Jan to Apr before Cash for Clunkers has an impact.

and a 8.94% increase from May to Aug when cash for clunkers kicked in.

Moreover, this give the May 2.35 gain to the cash for clunkers.
But that actually preceded the
program going into effect.

We only have limited history for the Manheim index back to l996, but the CPI index for used car prices typically is a leading index of new car sales and generally it surges in the first year of an economic recovery.

Your thesis that the current surge in used cars prices stems only from the cash for clunkers needs a lot more evidence than the data you are providing.

 
At 11/02/2009 6:33 PM, Anonymous American Delight said...

But instead of the Democrats coming out and admitting, "Gosh, this program had a lot of unintended consequences, so we'll avoid such initiatives in the future," they're still out there BRAGGING about the "stimulative" effect of c-f-c.

 
At 11/02/2009 10:23 PM, Blogger sethstorm said...


More proof that the best friend of the poor is free markets rather than big government.

Until they sell your work to some (unreachable/unstable) foreign country.

Then things start to equal out, and not in the good direction.

Not every situation calls for an unassailable entity.

No, I did not care for CFC, either.

 
At 11/03/2009 5:58 PM, Blogger juandos said...

Hmmm, are we sure that politics isn't in part driving the market?

 

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