Special interests cash in on clunker boondoggle
By: Timothy P. Carney
Examiner Columnist
August 5, 2009
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| A 1995 Jeep Cherokee traded in as part of the federal government's "cash for clunkers" incentive program is shown at a Ford dealership in Centennial, Colo., Sunday, Aug. 2, 2009. With the Obama administration saying it will honor $3,500-$4,500 "cash for clunker" deals in the pipeline by Tuesday, the Senate is under heavy pressure to pass a House bill that come up with $2 billion to extend the instantly popular and overwhelmed rebate program. (AP Photo/David Zalubowski) |
Automakers and car dealers aren’t the only ones profiting from the billion-dollar boondoggle called Cash for Clunkers. The program, which President Barack Obama wants to expand to $3 billion, benefits an interesting array of those “narrow interests” that Obama campaigned against, according to lobbying records.
Cash for Clunkers, funded originally with $1 billion in taxpayer money, provides rebates of up to $4,500 to dealers selling new cars and accepting trade-ins with worse mileage, provided the dealer scraps the old car and destroys almost all of its parts. The idea: Help struggling car dealers and carmakers by subsidizing their sales, while helping the planet by taking older, less efficient cars off the road.
Unsurprisingly, the automakers lobbied heavily for this bill. Also, the National Automobile Dealers Association instructed its members to call and write Congress in support of the program. The U.S. Chamber of Commerce, in the midst of its “Campaign for Free Enterprise,” backed it, as did the National Association of Manufacturers.
But the benefit to carmakers is not as straightforward as you might think. Two experts — car-selling Web site Edmunds.com and economic modeler Macroeconomic Advisers — estimated that a vast majority of the trade-ins that take advantage of Cash for Clunkers would have happened anyway. Some people delayed trading in their cars after they heard in June that the program was in the making. Some people hurried up their purchases to get rebates while they lasted. In other words, most of the boom in car sales this past week were not “new sales,” but sales stolen from Independence Day and Labor Day.
The first benefit of the subsidy is in boosting sales prices and lowering trade-in payments. It’s not as if dealers simply charge $4,500 less than they would have and pass the entire subsidy onto the buyer — dealers still charge as much for a new car and pay as little for a trade-in as their customers will allow. The subsidy is split between dealers and customers.
And who are the customers? Not poor people — they don’t shell out five figures for new cars. No, this is a middle-class to upper-middle-class subsidy, which is probably why politicians love it so much.
But the real benefit to business — and harm to the economy — comes after the car sale. The law requires the dealers destroy the “clunker” engine (which, to be eligible, was drivable upon trade-in), scrap the car and shred almost all its parts. This government-required waste reduces the supply of used cars on the road. Reduce the supply of drivable used cars, and you drive up the price of all cars.
This supply reduction is the real stimulus for automakers and new-car dealers, and it comes at the expense of every consumer who didn’t take advantage of Cash for Clunkers — especially those who can’t afford a new car. The program taxes used-car buyers to subsidize new-car buyers.
(Maybe this is the environmental gain: Poorer people riding the bus but hoping to buy a used car are now stuck riding the bus.)
But lobbying records show more interesting angles to the program.
One lobbyist for this bill was Nucor Steel. In Cayuga County, N.Y., Nucor turns scrap steel into sheet metal and other steel products. The clunkers are now becoming a subsidized feedstock for Nucor, which helps explain why Sen. Chuck Schumer, D-N.Y., has led the push for $2 billion extra in clunker cash.
Then there’s Enterprise Rent-a-Car also backing the bill, supposedly out of solidarity with automakers. But Enterprise sells its rental cars after a few years. As a rental firm that buys its cars new, Enterprise benefits every time someone else scraps a used car.
On the other side of the lobbying debate were non-dealer auto-repair shops, whose businesses depend on used or older cars, which the owners don’t take to the dealer for repair. Also, the Automotive Aftermarket Industry Association opposed the bill.
These are the guys who can sell you the headlight for your 1998 Ford Taurus, or who rebuild an engine out of a junked car.
Shredding old cars saps both their clientele and their supply of old transmissions to rebuild. Charities that accept donated cars also suffer.
Cash for Clunkers wastes resources, labor, and energy, but not all is squandered — at least the Democrats are winning good favor with the special interests.
