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Cash for Clunkers Consequences


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Interesting article from Jeff Jacoby of the Boston Globe, that sheds some insight into the consequences from the Obama administrations government give-away program. Here's the link: Cash For Clunkers-Classic Government Folly

'Clunkers, a Classic Government Folly

IN THE market for a used car? Good luck finding a bargain: The price of "pre-owned'' vehicles has climbed considerably over the past year. According to Edmunds.com, a website for car buyers, a three-year-old automobile today will set you back, on average, close to $20,000 — a spike of more than 10 percent since last summer. For some popular models, the increase has been much steeper. In July, a used Cadillac Escalade was going for around $35,000, or nearly 36 percent over last July's price.Why are used-car prices rocketing? Part of the answer is that demand is up: With unemployment high and the economy uncertain, some car buyers who might otherwise be looking for a new truck or SUV are instead shopping for a used vehicle as a way to save money.

But an even bigger part of the answer is that the supply of used cars is artificially low, because your Uncle Sam decided last year to destroy hundreds of thousands of perfectly good automobiles as part of its hare-brained Car Allowance Rebate System — or, as most of us called it, Cash for Clunkers. That was the program under which the government paid consumers up to $4,500 when they traded in an old car and bought a new one with better gas mileage. The traded-in cars — which had to be in drivable condition to qualify for the rebate — were then demolished: Dealers were required to chemically wreck each car's engine, and send the car to be crushed or shredded.

Congress and the Obama administration trumpeted Cash for Clunkers as a triumph — the president pronounced it "successful beyond anybody's imagination.'' Which it was, if you define success as getting people to take "free'' money to make a purchase most of them are going to make anyway, while simultaneously wiping out productive assets that could provide value to many other consumers for years to come. By any rational standard, however, this program was sheer folly.

No great insight was needed to realize that Cash for Clunkers would work a hardship on people unable to afford a new car. "All this program did for them,'' I wrote last August, "was guarantee that used cars will become more expensive. Poorer drivers will be penalized to subsidize new cars for wealthier drivers.'' Alec Gutierrez, a senior analyst for Kelley Blue Book, predicted that used-car prices would surge by up to 10 percent. "It's going to drive prices up on some of the most affordable vehicles we have on the road,'' he told USA Today. In short, Washington spent nearly $3 billion to raise the price of mobility for drivers on a budget.

To be sure, Cash for Clunkers gave a powerful jolt to car sales in July and August of 2009. But it did so mostly by delaying sales that would otherwise have occurred in April, May, and June, or by accelerating those that would have taken place in September, October, or later. "Influencing the timing of consumers' durable purchases is easy,'' Edmunds CEO Jeremy Anwyl wrote a few days ago in a blog post looking back at the program. "Creating new purchases is not.'' Of the 700,000 cars purchased during the clunkers frenzy, the estimated net increase in sales was only 125,000. Each incremental sale thus ended up costing the taxpayers a profligate $24,000.

Even on environmental grounds, Cash for Clunkers was an exorbitant dud. Researchers at the University of California-Davis calculated that the reduction of carbon dioxide attributable to the program cost no less than $237 per ton. In contrast, carbon emissions credits cost about $20 per ton in international markets.

Using Department of Transportation figures, the Associated Press calculated that replacing inefficient clunkers with new cars getting higher mileage would reduce CO2 emissions by around 700,000 tons a year — less than Americans emit in a single hour. Likewise, the projected reduction in gasoline use amounted to about as much as Americans go through in 4 hours. (And that's only if you assume — contrary to historical experience — that fuel consumption decreases when fuel efficiency rises.)

When all is said and done, Cash for Clunkers was a deplorable exercise in budgetary wastefulness, asset destruction, environmental irrelevance, and economic idiocy. Other than that, it was a screaming success.

Jeff Jacoby can be reached at jacoby@globe.com. dingbat_story_end_icon.gif

© Copyright 2010 Globe Newspaper Company.

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I don't buy the argument. Nobody was trading in a $17,000 Jeep for a $4500 discount on a new car. At best, it lowered the supply of cheap used cars and had no effect on the mid-level used car market.

As if the mid level is really hurt by any of this. If you are middle class and still have a job you are filthy rich compared to most people.

"Poorer drivers will be penalized to subsidize new cars for wealthier drivers.''

This quote, in particular, stuck with me because this is what this country has become accustomed to doing the last 20+ years. Steal from the poor to give to the rich. I wonder how long this country will put up with it.

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As if the mid level is really hurt by any of this. If you are middle class and still have a job you are filthy rich compared to most people.

"Poorer drivers will be penalized to subsidize new cars for wealthier drivers.''

This quote, in particular, stuck with me because this is what this country has become accustomed to doing the last 20+ years. Steal from the poor to give to the rich. I wonder how long this country will put up with it.

As long as there is a rightwing and poor minorities for them to blame their problems on.

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I'm gonna have to call shenanigans. I purchased a used car yesterday after a 2-3 week search. Sites like Craigslist and Autotrader will debunk this article!

It seems to me there's no shortage of used cars sitting on lots so you should be able to effectively sodomize a used car dealer.

Edited by The Great American
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I don't buy the argument. Nobody was trading in a $17,000 Jeep for a $4500 discount on a new car. At best, it lowered the supply of cheap used cars and had no effect on the mid-level used car market.

True, but if they were trading in a $3,000 car for the $4500, and those $3000 cars WERE DESTROYED, it caused a shortage of $3000 cars.

So when someone wants to BUY a $3000 car, and there is no supply, a $2500 car is now worth $3000. And when this happens, it works its way up the chain (aka, at every level, used cars are now worth 10% more).

I was also just part of a used car purchase, in this case I was helping my brother who is still in college. It was extremely difficult to find a quality used vehicle at a given price. Used car dealers had no shortage of demand on good car- in this case, a car that I had determined based on KBB, Edmunds, etc. to be worth $7500 was offered at $9000. When I began to haggle with the salesman, he said "listen, I will sell this car at $9000, I am not budging".

What this article failed to mention (or at least I didn't read it), was that the $4,500 was TAXABLE! It was considered income, so those poor people that were given a 'break' had to pay taxes on that 'break'.

Cash for Clunkers was a joke. I understand that the gov't may not have had the foresight, but I just hate that they still call it a success.

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True, but if they were trading in a $3,000 car for the $4500, and those $3000 cars WERE DESTROYED, it caused a shortage of $3000 cars.

So when someone wants to BUY a $3000 car, and there is no supply, a $2500 car is now worth $3000. And when this happens, it works its way up the chain (aka, at every level, used cars are now worth 10% more).

I was also just part of a used car purchase, in this case I was helping my brother who is still in college. It was extremely difficult to find a quality used vehicle at a given price. Used car dealers had no shortage of demand on good car- in this case, a car that I had determined based on KBB, Edmunds, etc. to be worth $7500 was offered at $9000. When I began to haggle with the salesman, he said "listen, I will sell this car at $9000, I am not budging".

What this article failed to mention (or at least I didn't read it), was that the $4,500 was TAXABLE! It was considered income, so those poor people that were given a 'break' had to pay taxes on that 'break'.Cash for Clunkers was a joke. I understand that the gov't may not have had the foresight, but I just hate that they still call it a success.

First you were dealing with lame sales people.

like TGA said you could easily find less then expensive vehicles. Even with dealerships if you know how to haggle and you know what something is actually worth you CAN get a good deal. Take it soem from someone who process auto loans for a credit union for a living, there are MANY good deals out there.

Second, the whole taxable thing has been debunked over and over again. But for he sake of knowledge.....

http://ptmoney.com/2009/08/28/cash-for-clunkers-tax-rules/

"Is the credit subject to being taxed as income to the consumers that participate in the program?"

"NO. The CARS Act expressly provides that the credit is not income for the consumer."

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Interesting article from Jeff Jacoby of the Boston Globe, that sheds some insight into the consequences from the Obama administrations government give-away program. Here's the link: Cash For Clunkers-Classic Government Folly

'Clunkers, a Classic Government Folly

IN THE market for a used car? Good luck finding a bargain: The price of "pre-owned'' vehicles has climbed considerably over the past year. According to Edmunds.com, a website for car buyers, a three-year-old automobile today will set you back, on average, close to $20,000 — a spike of more than 10 percent since last summer. For some popular models, the increase has been much steeper. In July, a used Cadillac Escalade was going for around $35,000, or nearly 36 percent over last July's price.Why are used-car prices rocketing? Part of the answer is that demand is up: With unemployment high and the economy uncertain, some car buyers who might otherwise be looking for a new truck or SUV are instead shopping for a used vehicle as a way to save money.

But an even bigger part of the answer is that the supply of used cars is artificially low, because your Uncle Sam decided last year to destroy hundreds of thousands of perfectly good automobiles as part of its hare-brained Car Allowance Rebate System — or, as most of us called it, Cash for Clunkers. That was the program under which the government paid consumers up to $4,500 when they traded in an old car and bought a new one with better gas mileage. The traded-in cars — which had to be in drivable condition to qualify for the rebate — were then demolished: Dealers were required to chemically wreck each car's engine, and send the car to be crushed or shredded.

Congress and the Obama administration trumpeted Cash for Clunkers as a triumph — the president pronounced it "successful beyond anybody's imagination.'' Which it was, if you define success as getting people to take "free'' money to make a purchase most of them are going to make anyway, while simultaneously wiping out productive assets that could provide value to many other consumers for years to come. By any rational standard, however, this program was sheer folly.

No great insight was needed to realize that Cash for Clunkers would work a hardship on people unable to afford a new car. "All this program did for them,'' I wrote last August, "was guarantee that used cars will become more expensive. Poorer drivers will be penalized to subsidize new cars for wealthier drivers.'' Alec Gutierrez, a senior analyst for Kelley Blue Book, predicted that used-car prices would surge by up to 10 percent. "It's going to drive prices up on some of the most affordable vehicles we have on the road,'' he told USA Today. In short, Washington spent nearly $3 billion to raise the price of mobility for drivers on a budget.

To be sure, Cash for Clunkers gave a powerful jolt to car sales in July and August of 2009. But it did so mostly by delaying sales that would otherwise have occurred in April, May, and June, or by accelerating those that would have taken place in September, October, or later. "Influencing the timing of consumers' durable purchases is easy,'' Edmunds CEO Jeremy Anwyl wrote a few days ago in a blog post looking back at the program. "Creating new purchases is not.'' Of the 700,000 cars purchased during the clunkers frenzy, the estimated net increase in sales was only 125,000. Each incremental sale thus ended up costing the taxpayers a profligate $24,000.

Even on environmental grounds, Cash for Clunkers was an exorbitant dud. Researchers at the University of California-Davis calculated that the reduction of carbon dioxide attributable to the program cost no less than $237 per ton. In contrast, carbon emissions credits cost about $20 per ton in international markets.

Using Department of Transportation figures, the Associated Press calculated that replacing inefficient clunkers with new cars getting higher mileage would reduce CO2 emissions by around 700,000 tons a year — less than Americans emit in a single hour. Likewise, the projected reduction in gasoline use amounted to about as much as Americans go through in 4 hours. (And that's only if you assume — contrary to historical experience — that fuel consumption decreases when fuel efficiency rises.)

When all is said and done, Cash for Clunkers was a deplorable exercise in budgetary wastefulness, asset destruction, environmental irrelevance, and economic idiocy. Other than that, it was a screaming success.

Jeff Jacoby can be reached at jacoby@globe.com. dingbat_story_end_icon.gif

© Copyright 2010 Globe Newspaper Company.

And the bigger part of the problem is if you are unemployed and buying a used Caddilac Escalade. :lol:

Most people I know who are unemployed and looking for a car are usually looking for that sub800 dollar clunker in someones yard just till they get back on their feet. So I doubt unemployed people are driving demands up for stuff like used Escalades.

But in this world, WTF knows?

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First you were dealing with lame sales people.

like TGA said you could easily find less then expensive vehicles. Even with dealerships if you know how to haggle and you know what something is actually worth you CAN get a good deal. Take it soem from someone who process auto loans for a credit union for a living, there are MANY good deals out there.

Second, the whole taxable thing has been debunked over and over again. But for he sake of knowledge.....

http://ptmoney.com/2009/08/28/cash-for-clunkers-tax-rules/

"Is the credit subject to being taxed as income to the consumers that participate in the program?"

"NO. The CARS Act expressly provides that the credit is not income for the consumer."

I will call my attorney.... to inform him that his son should NOT have paid income tax on his Cash for Clunkers purchase.

There will always be deals on the automotive market, of course. But there is more demand on those deals. As the article says, be it a turn in the economy or Cash for Clunkers, it is there. And I found the good deal I was looking for, but the original car I wanted did sell - and at the price I was unwilling to pay.

I am certainly not a professional car dealer, but I have been involved in the purchase of roughly a dozen used cars in the past 3-4 years. The beauty & curse of used cars is that they are ONE OF A KIND. You don't get to pick the color, the options, whatever. And when that one-of-a-kind car now has less competition on the market to be sold, the price certainly isn't going down.

Anyone removing used cars from the public, in this case the government, is going to throw a wrench into the used car market.

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I will call my attorney.... to inform him that his son should NOT have paid income tax on his Cash for Clunkers purchase.

There will always be deals on the automotive market, of course. But there is more demand on those deals. As the article says, be it a turn in the economy or Cash for Clunkers, it is there. And I found the good deal I was looking for, but the original car I wanted did sell - and at the price I was unwilling to pay.

I am certainly not a professional car dealer, but I have been involved in the purchase of roughly a dozen used cars in the past 3-4 years. The beauty & curse of used cars is that they are ONE OF A KIND. You don't get to pick the color, the options, whatever. And when that one-of-a-kind car now has less competition on the market to be sold, the price certainly isn't going down.

Anyone removing used cars from the public, in this case the government, is going to throw a wrench into the used car market.

I know several people who took advantage of the cash for clunkers and they did not pay income tax on it, so if by some how he did then yes he needs to take it up with IRS.

And what the article did not mention and you are forgetting is the price of used vehicles like Escalade's, explores, etc and other vehicles who get terrible gas mileage have been going up for years.

Not just with economy tanking but when gas prices shot through the roof... you saw way more escalades for sale then ford Taurus's. People could not afford to drive them

not to mention those types of vehicles were WAY over priced from the get go.

To try and pin it on the government and a program that actually worked .as the reason why is partisan hackery to the umpth degree

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I know several people who took advantage of the cash for clunkers and they did not pay income tax on it, so if by some how he did then yes he needs to take it up with IRS.

And what the article did not mention and you are forgetting is the price of used vehicles like Escalade's, explores, etc and other vehicles who get terrible gas mileage have been going up for years.

Not just with economy tanking but when gas prices shot through the roof... you saw way more escalades for sale then ford Taurus's. People could not afford to drive them

not to mention those types of vehicles were WAY over priced from the get go.

To try and pin it on the government and a program that actually worked .as the reason why is partisan hackery to the umpth degree

Wait.... so more and more Escalades (and SUVs like them) are for sale, because people can not afford them, but prices are going UP??? How does THAT work?

(and for the record, the vehicles I mentioned in my purchase were NOT SUVs)

I think you have it backwards. The price of Escalades would go DOWN in the case of increasing gas prices. My neighbor lost a ton of money on his Lincoln Navigator - no one wanted to buy a used car with a huge V8 with gas at $4.00/gallon. If no one wants a car (like you said, no one can afford an Escalade), then the market price will go DOWN. Supply & Demand.

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Wait.... so more and more Escalades (and SUVs like them) are for sale, because people can not afford them, but prices are going UP??? How does THAT work?

(and for the record, the vehicles I mentioned in my purchase were NOT SUVs)

I think you have it backwards. The price of Escalades would go DOWN in the case of increasing gas prices. My neighbor lost a ton of money on his Lincoln Navigator - no one wanted to buy a used car with a huge V8 with gas at $4.00/gallon. If no one wants a car (like you said, no one can afford an Escalade), then the market price will go DOWN. Supply & Demand.

simple because NEW prices keep going up.

so many people buy these vehicles with insanely high interest rates, they are so upside down for what they are paying they simply CANT have the prices go much lower.

Supply and demand does not always work in real life.

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a prime example of supply and demand not always working is this like I mentioned new prices increase, the demand for SUV gas guzzler type vehicles has dropped big time in recent years, yet the prices for them steadily increase.

You can't use the point you are trying to prove as an example....

Supply & Demand DOES work. ALWAYS. In this case, there is less demand of gas-guzzling SUVs (as you said). Therefore, there is more supply. Less demand, more supply = prices go down. (see the green area below) More people are trying to sell their gas-guzzler, and less people want to buy them. Simple.

SupplyDemand.png

I would be interested to see proof of used, gas-guzzling SUV prices INCREASING, based on the logic that Because the car was bought new at high interest rates, therefore the seller MUST raise the price, in order to break even (which never happens in 99.9% of cars, since they are an expense, not an investment)

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You can't use the point you are trying to prove as an example....

Supply & Demand DOES work. ALWAYS. In this case, there is less demand of gas-guzzling SUVs (as you said). Therefore, there is more supply. Less demand, more supply = prices go down. (see the green area below) More people are trying to sell their gas-guzzler, and less people want to buy them. Simple.

SupplyDemand.png

I would be interested to see proof of used, gas-guzzling SUV prices INCREASING, based on the logic that Because the car was bought new at high interest rates, therefore the seller MUST raise the price, in order to break even (which never happens in 99.9% of cars, since they are an expense, not an investment)

it was bought new at a higher price,

given the escalade exampple the difference between a 2007 escalade and a 2010 could be as high as 9,000.

When you buy a vehicle that is already over priced to begin with, guess what that vehicle is 3 years down the road?? overpriced.

as far as interest rates go, if someone buys a 70,000 vehicle ( I know that's crazy but the article mentioned the escalade and that is about what new versions of that are running)

but even say a 30k vehicle which are what a lot of newer vehicles run (especially the suv types) now with a 10% interest rate (which is actually a middle of the road rate) after 3 years of just regular payments, that vehicle is still going to be owed over 19k on it.

19,636.45 to be exact. and depending on how many miles are on it, it may only be "worth" 16-17000 ( or less depending on make and model)

Supply and demand has NOTHING to do with the fact the vehicle was over priced to begin with especially when the demand for the suv types has wained SIGNIFICANTLY over the years. and the fact if its financed people HAVE TO get the amount owed to sell it.

Because almost no bank or credit union is going to release the title with money still owed on loan.

If its owned free and clear that is different but the vast vast vast majority of people with those types if vehicles have them financed.

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and t piggy back off of that, people get so upside down in their vehicles now its not funny.

on average if you are going to trade in your vehicle you are going to have between 2-3k negative equity, so guess that that does to the cost of the new ( or new to you) vehicle? it increases it because if you trade in something that you owe 20k on but dealership only giving you 17 ( that they are going ot turn around and mark it up to 21k)

you roll that 3k into the the new loan,. then all of a sudden that 15-16k vehicle just turned into a 18-19k vehicle.

The whole notion that oh the government just raised the cost of used vehicles is stupid and baseless and the "supply and demand" aspect of it has little to do with it as well.

Kia Rios are not 8k because they are so many of them..........they are 8 k because they are cheap.

many SUV types are not 35+k because there are so few of them and people want them.

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and t piggy back off of that, people get so upside down in their vehicles now its not funny.

on average if you are going to trade in your vehicle you are going to have between 2-3k negative equity, so guess that that does to the cost of the new ( or new to you) vehicle? it increases it because if you trade in something that you owe 20k on but dealership only giving you 17 ( that they are going ot turn around and mark it up to 21k)

you roll that 3k into the the new loan,. then all of a sudden that 15-16k vehicle just turned into a 18-19k vehicle.

The whole notion that oh the government just raised the cost of used vehicles is stupid and baseless and the "supply and demand" aspect of it has little to do with it as well.

Kia Rios are not 8k because they are so many of them..........they are 8 k because they are cheap.

many SUV types are not 35+k because there are so few of them and people want them.

OK, I am going to assume you never took any form of economics class, because almost none of what you said makes any sense.

In the used car business, it is absolutely irrelevant what you owe on car as to what the price is. Sure, obviously the seller wants to recoup their money (ideally, make money), but because SUPPLY & DEMAND works EVERY SINGLE TIME, the amount owed or the interest rate, plays very little role.

The case you made about the Kia being $8K or an SUV being $30K is a great example, except you didn't appear to explain it well.

A Kia is is not $8000 because there are so many, correct, but there is not as much demand at a higher price. If the price was $10K - there would be a surplus. Go back and look at the Supply & Demand chart - the laws clearly state that at a given price, other than equilibrium, there is a difference in supply & demand. If that Kia was $12K, very few people would buy, because it is NOT a good deal. But if it was $4K, there would be a shortage of Kia's, because that would be an very cheap product, that is normally worth$8K.

This also applies to the gas-guzzling Escalade. It is absolutely irrelevant what the seller owes the bank on the vehicle. If the market value is $20K, and the seller still owes $23K to the bank, he can try and sell the vehicle for $23K, but because the demand of Escalades is greater at $20K than at $23K, he will likely find it difficult to sell. The same would be true if someone tried to sell the vehicle at $18K, more people would be interested, and that would make it difficult for the people attempting to sell at $20K.

Again, Supply & Demand ALWAYS works. We live in a market economy. If there is a shortage of $3500 cars, as is the case because of Cash for Clunkers, then that will create a greater demand on the $3500 cars that are remaining. And based on the Supply & Demand chart posted above, if there is a greater demand but less supply, the market value will ultimately go up. And if a $3500 car is now selling at $4000, what happens to the car that was worth $4000 just a few months ago? That is now worth $4500, and so on.

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True, but if they were trading in a $3,000 car for the $4500, and those $3000 cars WERE DESTROYED, it caused a shortage of $3000 cars.

So when someone wants to BUY a $3000 car, and there is no supply, a $2500 car is now worth $3000. And when this happens, it works its way up the chain (aka, at every level, used cars are now worth 10% more).

I was also just part of a used car purchase, in this case I was helping my brother who is still in college. It was extremely difficult to find a quality used vehicle at a given price. Used car dealers had no shortage of demand on good car- in this case, a car that I had determined based on KBB, Edmunds, etc. to be worth $7500 was offered at $9000. When I began to haggle with the salesman, he said "listen, I will sell this car at $9000, I am not budging".

What this article failed to mention (or at least I didn't read it), was that the $4,500 was TAXABLE! It was considered income, so those poor people that were given a 'break' had to pay taxes on that 'break'.

Cash for Clunkers was a joke. I understand that the gov't may not have had the foresight, but I just hate that they still call it a success.

You're assuming that the supply of $3000 cars was at an equilibrium, so that taking several off the market created a shortage. If there was a surplus of $3000 cars then the effect on low-end car prices was negligible.

Also, the vehicles being traded in had horrible gas mileage. Most of the used cars people are looking for today are those with better mileage. These are people who can't afford to sink $50 a week into an old pickup or SUV, so they're looking at Toyota's and Honda's and Saturn's that got 30-40MPG. These are not vehicles that qualified for the cash for clunkers program.

You have had a surplus of used gas guzzlers on the market for years. These cars get taken off the market at the same time as consumer demand switches from wanting new gas guzzlers to wanting used cars that get good gas mileage, and the effect of the program is minimal.

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You're assuming that the supply of $3000 cars was at an equilibrium, so that taking several off the market created a shortage. If there was a surplus of $3000 cars then the effect on low-end car prices was negligible.

Also, the vehicles being traded in had horrible gas mileage. Most of the used cars people are looking for today are those with better mileage. These are people who can't afford to sink $50 a week into an old pickup or SUV, so they're looking at Toyota's and Honda's and Saturn's that got 30-40MPG. These are not vehicles that qualified for the cash for clunkers program.

You have had a surplus of used gas guzzlers on the market for years. These cars get taken off the market at the same time as consumer demand switches from wanting new gas guzzlers to wanting used cars that get good gas mileage, and the effect of the program is minimal.

Very valid point, although I would argue that the general of supply of $3000 cars would HAVE to be at equilibrium, because that is a price point, not an individual vehicle. (example, a Toyota Corolla may be in shortage - price increases to $3500, but a Honda Civic may be at surplus - price decreases to $2500). Together, they represent that $3000 vehicle class.

When you talk about a price point of a vehicle, like you would if you characterized Cash for Clunkers vehicles of $4500 or less, that creates a shortage. It would be different if the program was to remove specific older, gas-guzzling vehicles (like "Trade in your 1980-1985 Jeep for $4500"), then you have to take into consideration whether there was a surplus or shortage of that given vehicle.

Furthermore, there was no 'bottom' to this program, so even a fuel efficient 1983 Toyota Tercel could be traded in for $4500, provided it was towards the purchase of a more fuel efficient vehicle. No complaints against the Tercel owner, but it didn't go far enough to remove the truly gas-guzzling vehicles we thought it would.

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OK, I am going to assume you never took any form of economics class, because almost none of what you said makes any sense.

In the used car business, it is absolutely irrelevant what you owe on car as to what the price is. Sure, obviously the seller wants to recoup their money (ideally, make money), but because SUPPLY & DEMAND works EVERY SINGLE TIME, the amount owed or the interest rate, plays very little role.

The case you made about the Kia being $8K or an SUV being $30K is a great example, except you didn't appear to explain it well.

A Kia is is not $8000 because there are so many, correct, but there is not as much demand at a higher price. If the price was $10K - there would be a surplus. Go back and look at the Supply & Demand chart - the laws clearly state that at a given price, other than equilibrium, there is a difference in supply & demand. If that Kia was $12K, very few people would buy, because it is NOT a good deal. But if it was $4K, there would be a shortage of Kia's, because that would be an very cheap product, that is normally worth$8K.

This also applies to the gas-guzzling Escalade. It is absolutely irrelevant what the seller owes the bank on the vehicle. If the market value is $20K, and the seller still owes $23K to the bank, he can try and sell the vehicle for $23K, but because the demand of Escalades is greater at $20K than at $23K, he will likely find it difficult to sell. The same would be true if someone tried to sell the vehicle at $18K, more people would be interested, and that would make it difficult for the people attempting to sell at $20K.

Again, Supply & Demand ALWAYS works. We live in a market economy. If there is a shortage of $3500 cars, as is the case because of Cash for Clunkers, then that will create a greater demand on the $3500 cars that are remaining. And based on the Supply & Demand chart posted above, if there is a greater demand but less supply, the market value will ultimately go up. And if a $3500 car is now selling at $4000, what happens to the car that was worth $4000 just a few months ago? That is now worth $4500, and so on.

You are right I have never taken a "class"

But by the statement you made, its obvious you dont have a whole lot of real world experience with it.

If you think what someone owes on a vehicle vs what it is worth has no effect then you REALLY need to do some research.

Again if you owe a vehicle free and clear you may havea point, but when you are talking about financed vehicles which the overwhleming majority of people buying cars, the amount owed ( which has a direct impact by the interest rate of fianced vehicles) that has a direct impact on the price of the newly purchased price.

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You are right I have never taken a "class"

But by the statement you made, its obvious you dont have a whole lot of real world experience with it.

If you think what someone owes on a vehicle vs what it is worth has no effect then you REALLY need to do some research.

Again if you owe a vehicle free and clear you may havea point, but when you are talking about financed vehicles which the overwhleming majority of people buying cars, the amount owed ( which has a direct impact by the interest rate of fianced vehicles) that has a direct impact on the price of the newly purchased price.

I had to re-read that last sentence 3 or 4 times, still not sure what you were trying to say with "direct impact on the price of the newly purchased price".

But to further prove my point, when Toyota had their problems with the Prius (perceived brake issues), the value of the Prius was hit almost instantly (although it appears those issues are resolved, and the Prius has gone back to 'normal', I am just referring to immediately after the brake issues were brought to light)

If you bought a Prius the day before Toyota issued a recall, it had ZERO impact what price you paid, or what your interest rate was - the value of the Prius went down because DEMAND for a vehicle with perceived brake issues dramatically decreased. Again, price paid and interest rate are IRRELEVANT if there isn't DEMAND at that price. You can try all you want to sell that Prius at the MSRP you paid the day before, probably more for your financing costs, but you will have a hard time finding a buyer.

Again, of course any seller will want to fully recoup what they owe the bank, but the market doesn't care. The only thing that dictates price is the market demand, nothing more.

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