Cash for Everyone...

by Eric Peters
EricPetersAutos.com

There's a federal cash giveaway for almost everything on four wheels – except things that make economic sense.

Two years ago, the government paid people to throw away perfectly good older cars – many of them fully paid for – and paid them to buy a new car to replace it (even though most people could only buy a piece of the new car and had to sign up for a loan to cover the rest). It was called "Cash for Clunkers" and while its stated purpose was to get more fuel-efficient new cars on the road, it's real result was to drive up the cost of used cars (by dint of lowering the supply) so that people who lived within their means – and tended not to buy new cars – suffered higher prices so the less responsible (and opportunistic) could motor around in new cars partially paid for by their taxes.

Let me share an anecdote with you about the effect of Cash for Clunkers on the cost/availability of older used pick-up trucks.

Just before the program began, I bought a 2002 Nissan Frontier with less than 60,000 miles on the clock for $7,000 cash. (I never finance anything; paying for what you can afford is a key secret to avoiding the Debt Dervish that has consumed so many Americans' lives.) That's about what trucks like it were selling for, pre-Clunker.

Today, almost two years later – and now truck now two years older – I can't find a single similar condition/mileage example for much less than $10,000. (See for yourself. Go search www.autotrader.com – which has regional as well as national listings. It's an excellent barometer for current retail/wholesale used vehicle prices.)

Thanks, Uncle – on behalf of all the people who would have liked to buy (probably outright) an older truck with years of life still left instead of signing up for a loan on a new one – but can't now either because the trucks aren't available or because they're just too damn expensive.

Next up – the federal giveaway for hybrid and electric cars like the 2011 Chevy Volt. It is an economic oxymoron. Built to save gas, it burns money instead – rendering the exercise moot. With a base price of $40,280 the Volt costs as much as a loaded 2011 BMW 3-Series luxury-sport sedan. A person in a position to buy a $40k car is by definition not a person who worries much about gas mileage – or to be more precise, needs to worry about gas mileage. Thus the Volt is a vanity purchase, an example of 21st-century Green Snobbery. Look how much I care about the planet! (Like Al Gore holding forth about greenhouse gasses as he motors along in his $60,000 Cadillac Escalade SUV. See the movie. They forgot to edit out this most revealing scene.)

You may find Volts parked in front of $400,000 suburban homes occupied by white-collar workers with six figure incomes. You won't find them parked outside $75,000 condos that house people who earn $40,000 per year – and who would never spend $40,000 on a car (any car) because they can't spend $40,000 on a car.

Not without "help," that is.

People who sweat high gas prices drive $8,000 used Corollas or maybe a new Ford Fiesta – which by the way gets 41 MPG on the highway and costs a third what Chevy wants for its electric Albatross.

So – once again – enter Uncle. He is offering $7,000 of your money to nudge other people to buy the Volt. Why not just give them a $7,000 voucher for free gas instead? It would cut out the crony capitalist middleman – GM – and probably cost less, too.

Of course the problem there is not everyone gets a check. The way our system works, some use the government to feed off others. GM uses the government to extract money from some of us, in order to offer financial incentives to others, so that they will "buy" GM's economically impossible high-tech lemon.

GM benefits; the people who "buy" the Volt benefit.

Taxpayers lose. More precisely, responsible people who try to live within their means – and not off the backs of others – lose.

Again.

In a rational world, without artificial "incentives" that throw everything off, people would buy cars they can afford and which make sense for them and their situation. The automakers would build cars to satisfy that demand, instead of throwing cash – and not their own cash – like so much confetti at projects that aren't ready for prime time or which can't make an economic case for themselves.

We wouldn't use the distorting power of the government to encourage people to throw away perfectly good cars, either – in order to encourage them to buy new ones they probably could not afford on their own and which often entail signing up for a new load o' debt they need like Oprah needs another serving of pie.

But, what can you do? It's either cash in and grab the subsidy – or be the sucker who helps pay for them and gets nothing in return.

Except the bill.

January 20, 2011

Eric Peters [send him mail] is an automotive columnist and author of Automotive Atrocities and Road Hogs (2011). Visit his website.

Copyright © 2011 Eric Peters

The Best of Eric Peters