Cash for Clunkers-The Losers

The cash for clunkers program is in full swing. Thus far it has been a big hit with consumers. In fact, it was such a hit that the federal government had to ask for additional funding to the tune of $2 billion dollars. Auto dealers are being inundated with customers. Now let me remind you that this is an auto industry that just recently had to be bailed out due to lack of vehicle sales. Due to the lack of business, dealerships have cut back on auto inventory. It would appear on the surface that this program is a huge success. Consumers are out in force purchasing vehicles and getting rid of those “clunker” vehicles. However, taking a closer look at the program reveals some real problems that are either just being ignored, or that haven’t been examined.

The first problem deals with simple economics. With the vast increase in vehicle sales it shouldn’t be too long before the funding will be depleted. Once that occurs what is left could cause real problems for future purchasers of automobiles. You are looking at an auto market that is low on inventory. Now if you have decreased supply with increased demand, the result is increased prices. One can only hope that by the time the program has ended, the auto industry has been able to increase their inventory to avoid this problem.

A second problem deals with auto repair shops. The Wall Street Journal published an article today in reference to this problem. Customers are deciding that with the potential $4500 credit for a new vehicle purchase, they are deciding not to have repairs done. Under normal circumstances they would have normally had their vehicle repaired. This has drastically hurt their business.

A final area deals with the overall idea behind this program. You have a struggling industry, such as the auto industry, and the government comes to the rescue and inputs federal funding to boost the business. This may seem great on the surface, but in my opinion it is sending the wrong message. Why should the auto industry receive such a boost when other businesses are out there struggling without government help? That was my problem with the bailouts. I do not believe this industry should have been bailed out initially to avoid bankruptcy. What has happened, they are now pumping more funding into the industry to increase sales. In my view, this just gives the goverment too much leverage and results in the government’s intervention into an industry that really they have no business becoming involved in.

Whether or not the potential problem areas described here become major issues remains to be seen. They certainly deserve a closer look. One would have to ponder what industry will next come under control of a Socialist President who is trying to instill his Socialist agenda into the everyday American life?

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