Friday, August 27, 2010

Cash for Clunkers: revisited

Say you're out of work, your spouse is out of work or you're under-employed but in dire need of some vehicular transportation. Obviously, in this economy and being in the financial circumstance that you are, you are leaning heavily towards the used car market.

But before we get to cruising down to the used car lot, let's go back to a previous post where we whined that Cash for Clunkers was $3 billion poured down the drain "for absolutely nothing".

Ah, how wrong we were.

Car buyers on average paid $1,800 more for a used vehicle in July than they paid a year ago at this time, according to data. That's a 10.3 percent increase, bringing the average cost of a 3-year-old vehicle to $19,248. The price of a Cadillac Escalade spiked nearly 36 percent. "A lack of confidence in the economy is driving more people to used cars, putting upward pricing pressure on a limited supply of vehicles," said Joe Spina, a senior analyst for Edmunds.

There's a tricky aspect to this analysis, because last summer was marked by a used-car buying frenzy spawned by the Cash for Clunkers program. Spina said the effects of that program are hard to isolate precisely. "So many economic factors affect automobile sales and prices. It's believed that the program delayed purchases prior to the program and also pulled sales forward while in place," he said. "The program also eliminated inventory of older vehicles that were traded and then scrapped."

Of course, you shouldn't be buying an Escalade anyway so the social engineering benefits of CfC are obvious.

So we were off on our assessment of Cash for Clunkers. Way off. That $3 billion of tax-payer scratch accomplished quite a bit, most importantly, by distorting the market by artificially reducing the supply of used cars and as a result, hosing over working families that would be in the market for used cars.

H/T: Instaglen

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