05 Aug Cash for Clunkers success? Too early to tell
CHICAGO – The “Cash for Clunkers” program may not be as successful as some are making it out to be. It may be too early to tell what will really help the economy long-term. Funny, how all the “overnight” economists are saying this is a great program. Sad that some of the legitimate “business economists” are saying this is a great program as well.
Who are buying these new cars and are they equipped to make the payments? Or will they be winding up six to twelve months from now defaulting on their loans just like those who got sub-prime mortgages? This is a valid observation I have heard from several in the last two days.
Do I put a lot of faith in these concerns? Right now, it is wait-and-see, but at least let’s look at it from all perspectives.
Payments vs. no payments
Those trading in 1998 and 1999 Ford Explorers as well as Jeep Cherokees and others probably had all of those cars and SUVs paid for. Now they are buying a new car probably with some type of monthly payment. More importantly, will they be able to afford it six months from now?
The Top Ten Models being traded in according toYahoo (http://autos.yahoo.com/articles/autos_content_landing_pages/1036/top-cash-for-clunkers-trade-ins-and-new-cars )
1. 1998 Ford Explorer
2. 1997 Ford Explorer
3. 1996 Ford Explorer
4. 1999 Ford Explorer
5. Jeep Grand Cherokee
6. Jeep Cherokee
7. 1995 Ford Explorer
8. 1994 Ford Explorer
9. 1997 Ford Windstar
10. 1999 Dodge Caravan
This is a dilemma that I don’t see many discussing, yet it is still a very real issue. Getting a new Ford Focus, Chevy Cobalt, Honda, Toyota Prius or Corolla may help people with their monthly gas bill but they are also picking up a new monthly payment that they did not have to worry about by buying a car? What about loan interest rates? Are any of these cars getting zero percent financing anymore?
If not, there is another chunk of money being collected out of the consumer. So let’s do the math again. Old car equals more cash for gas, but no monthly car note payment, and less premium for older car insurance.
New car equals less money for gas, but MORE money for new monthly car payment, plus bank interest if no zero percent financing and oh, higher insurance because it’s a new vehicle. As they say on TV, “Do the math.”
What is really choking America’s recovery today
There should be no mystery why our economy is sputtering today. Many people have been laid off out of their jobs and were replaced by foreign workers here and abroad. Many have taken lesser jobs and are underemployed so they do not show up on the unemployment statistics but do show up when it comes to state budget shortfalls because the tax base and job market have eroded.
I wrote several articles about this and now it is coming to light with the mainstream media and more importantly, with the mainstream economy.
Too late. Thousands of people with degrees and cutting-edge skills have lost to cheaper labor. All company CEOs complaining that no one is buying their products should have thought about this when they were laying people off and thinking that cost reduction was going to be great to get that year-end bonus.
Where are those executives now? Retired with golden parachutes? Still working? Are the best and the brightest workers currently in all the corporations? I would say that there is a lot of talent sitting on the sidelines.
Supposedly , we saved thousands of jobs in the auto industry. That was a good trade-off. Lay off people with cutting-edge skills and replace them with cheap labor and then bail out the auto industry so we can save industrial-age jobs that are overpaid that don’t even make a world-class product. “World-class” is a perception, but when it comes to putting a lot of money down on a car – perception is reality.
Long term view
So we pushed a lot of new cars this month, that is great. What is going to make them sell next month? Another $4,500 rebate?
Why didn’t we just send the original $60- $70 Billion of the auto bailout to consumers upfront. If we did that, you may have gotten $20,000 as a rebate for a new car.
A short-term fix like the car program is not going to fix long-term mistakes in corporations which have occurred in the last several years. These executive mistakes have permanently changed the economy.
Carlinism: Getting a partial rebate to take on a lot of debt does not make cents, it costs dollars.
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Follow daily Carlini-isms at www.TWITTER.com/JAMESCARLINI.
James Carlini is an adjunct professor at Northwestern University, and is president of Carlini & Associates. He can be reached at firstname.lastname@example.org or 773-370-1888. Check out his blog at carliniscomments.com.
James Carlini has been asked to speak at the upcoming Department of Homeland Security’s Workshop on Aging Infrastructure in New York City later this month.
This column previously appeared in MidwestBusiness.com, and was reprinted with its permission.
The opinions expressed herein or statements made in the above column are solely those of the author, and do not necessarily reflect the views of Wisconsin Technology Network, LLC.