Debates with liberals on economics is sorta fun. Let's have some more fun. Let's look at the failed cash for clunkers program or the CARS (The U.S. government’s Car Allowance Rebate System). On the surface many people got a benefit and we could argue there was a benefit by getting some gas guzzling high polluting cars off the road. I am not disputing the benefit of getting some gas guzzlers off of the road, but for everyone that got a benefit many more ended up paying higher prices for used cars.
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Effect on used car market.
* Normally, incentives on new vehicles drive used vehicle prices down. According to Manheim Consulting chief economist Tom Webb, every $1,000 in new vehicle incentives decreases used vehicle prices by $750. However, new vehicle inventories were low even before CARS started on July 24, which has helped to support higher used vehicle prices.
* Furthermore, CARS has actually increased demand for used vehicles. Many consumers went to dealerships intending to participate in CARS but found out their trade-in was ineligible, so they decided to look for a used vehicle on the same dealer’s lot.
* Dealers are thus bidding up auction prices as they acquire more used vehicles to sell to customers who cannot trade in their clunkers. According to Manheim, the Manheim Used Vehicle Value Index for July was at its highest level since September 2007.
* The (bankers) confidence in dealerships is going up. There is now, even, talk of all the dealerships that lost the franchise in recent auto industry reorganization joining together to form a new auto chain. (which can only mean more demand on used car market).
Bottomline.
To start with, the supply of used vehicles was down with people driving cars longer than ever – thanks to the economy.
Lot of, otherwise, cheaper used vehicles (clunkers) which would have landed at the used car lot are now headed to metal graveyard.
The demand is either same or headed higher.
The profiles of folks who bought vehicles seems to show they are a large number of buy-and-drive-till-wheels-fall-off types, who are unlikely to trade-in at the end of model year.
We think the pressure on used car prices will be upward. Compared to the rock bottom (give away to get out of auto loan) prices a few months ago, we expect the prices on used vehicles to go up by about 35%.
One more good thing, the part suppliers seem to have received a boost in arm (with orders to supply new vehicles) and lot of them should survive the auto reorganization!
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Effect of Cash for Clunkers (CARS) on used car prices. : News.PreOwnedCar.com
I point this out to illustrate that there are no free rides, in order for the government to give there has to be an off-setting cost. Think about it - the single mom in poverty needing a used car but did not have a "cluncker" or did not participate in the program, who now goes out to buy a car, let's say a $2,000 car needed for a new job, will pay about $700 more for the car. Thanks Mr. President.