Cash For Clunkers Stupidity To Get Another Taxpayer Bailout
More crack for the stimulus-addicted economy. After a panic the program would run out of money, the government decided to give away more taxpayer money and triple the program. This program has been so successful that I think we should make it permanent. In fact, why don't we have a permanent government stimulus program for consumers to purchase anything and everything their heart desires?
For those of you who need help because you are unemployed, don't worry. The reality is that you don't need a car if you don't have a job. In fact, you really don't need a roof over your head either. Well, okay, let's be honest. We really don't need you. At least that seems to be the reality given everyone is getting a bailout except the people who actually need it.
I have seen my fair share of brilliant campaigns like this. I have even created a few. Most of these programs had the effect of creating a future void in demand. In other words, pulling sales forward as opposed to creating net-new demand. So, the cost of running such a program was always determined to be prohibitive upon further analysis. In other words, if nine out of ten people participating in this program were going to buy a car in the next few years anyway, the cost to the program to generate net-new sales is about 10x more than the anticipated cost. If the program was originally funded for 250,000 cars and all but 25,000 buyers were going to buy a car in the next few years anyway, that means the cash for clunkers program wasn't $4,500 per car but more like $40,000 per car. Even if the net-new buyers are 50% of the total, the cost per car is still astronomical. So if GM, as an example, is discounting its cars heavily and one also adds the government rebate, we are basically giving away some of these cars. In other words, the ROI for this program is similar to that used by East Germany to manufacture the Trabant - we are losing money on each car but we'll make it up in volume.
Add in the fact that we will likely see a higher future default rate caused by stimulating financed purchases and the program becomes even more expensive. So, effectively banks are going to book profits financing these cars that will eventually lead to higher bank default rates due to the economic crisis. WTF? This is no different than these mortgage workouts where homeowners are still defaulting at a greater than 50% rate after refinancing.
We'll get a better indication of how these dynamics apply to the cash for clunker program in the coming year. I do believe government could play a pivotal role in dealing with this crisis but what we see today instead is government leading the charge of stupidity.
On a separate note, GM's China sales rose 78% from a year earlier period. Is that really a surprise given the even greater stupidity of China's economic policies?
I think we have taken enough stupid pills. Now can we get someone to supply our leaders with some smart pills?
Update Monday Night - Apparently the bill's authors are so ecstatic they called a news conference to announce the program's results. Diane Feinstein had a smile ear to ear talking about crack for clunker's success. This is what happens when you give a bureaucrat control of the economy. They dream up some hairbrained scheme they believe is making the situation better when they are actually making it worse.
For those of you who need help because you are unemployed, don't worry. The reality is that you don't need a car if you don't have a job. In fact, you really don't need a roof over your head either. Well, okay, let's be honest. We really don't need you. At least that seems to be the reality given everyone is getting a bailout except the people who actually need it.
I have seen my fair share of brilliant campaigns like this. I have even created a few. Most of these programs had the effect of creating a future void in demand. In other words, pulling sales forward as opposed to creating net-new demand. So, the cost of running such a program was always determined to be prohibitive upon further analysis. In other words, if nine out of ten people participating in this program were going to buy a car in the next few years anyway, the cost to the program to generate net-new sales is about 10x more than the anticipated cost. If the program was originally funded for 250,000 cars and all but 25,000 buyers were going to buy a car in the next few years anyway, that means the cash for clunkers program wasn't $4,500 per car but more like $40,000 per car. Even if the net-new buyers are 50% of the total, the cost per car is still astronomical. So if GM, as an example, is discounting its cars heavily and one also adds the government rebate, we are basically giving away some of these cars. In other words, the ROI for this program is similar to that used by East Germany to manufacture the Trabant - we are losing money on each car but we'll make it up in volume.
Add in the fact that we will likely see a higher future default rate caused by stimulating financed purchases and the program becomes even more expensive. So, effectively banks are going to book profits financing these cars that will eventually lead to higher bank default rates due to the economic crisis. WTF? This is no different than these mortgage workouts where homeowners are still defaulting at a greater than 50% rate after refinancing.
We'll get a better indication of how these dynamics apply to the cash for clunker program in the coming year. I do believe government could play a pivotal role in dealing with this crisis but what we see today instead is government leading the charge of stupidity.
On a separate note, GM's China sales rose 78% from a year earlier period. Is that really a surprise given the even greater stupidity of China's economic policies?
I think we have taken enough stupid pills. Now can we get someone to supply our leaders with some smart pills?
Update Monday Night - Apparently the bill's authors are so ecstatic they called a news conference to announce the program's results. Diane Feinstein had a smile ear to ear talking about crack for clunker's success. This is what happens when you give a bureaucrat control of the economy. They dream up some hairbrained scheme they believe is making the situation better when they are actually making it worse.
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