Wednesday, August 12, 2009

Euthanasia for Clunkers

You won’t believe what an auto dealer has to do to get a government rebate for a “clunker” these days.

The government-sponsored “Cash for Clunkers” has received a lot of attention recently – most notably in its sudden lack of funding and the worry of auto dealers, who fear that they may not be properly reimbursed for the huge discounts that they are offering. So, how does the program work?

First, you must check if your car is on the clunker “list”. The government provides a website where the user inputs their car data and a determination is made based primarily on the fuel rating (miles-per-gallon) of the car. I entered in the information for my shiny, almost-new 2005 mini-van and found that it missed the mark by only 1 MPG! It’s five years old and it’s only 1 MPG from being a clunker! And can you believe that a 2004 Mazda RX-8 is on the list for the trade-in! If you find that your car is eligible for the program, you will be able to receive a $3500-$4500 rebate on the purchase of a new car (used cars are not eligible). And what is the purpose of the overall program? The government is trying to 1) stimulate the economy by encouraging the purchase of a new car, and 2) “help the environment” by getting a high-emission car off the road. By my thinking, the benefit of this program is dubious on both counts.

First, the rebate will encourage many people to purchase a new car – and some of these people will not be able to afford it in the near-term. Just as the government-sponsored, low-interest housing loans tantalized people with bigger houses beyond their means, many will be attracted to the idea of having a new car in their garage, regardless of the payment book that follows. So for the lure of a few-thousand dollar discount, they will get themselves into a $500-$600 monthly payment that they can’t afford. And a year from now, they may default on the loan. Let’s face it – the discount only amounts to about ten percent of a new car purchase, so it will turn a $600 monthly payment into a $540 monthly payment. And the government is still encouraging banks to loan money to higher-risk clients. Like the housing cycle, the race to have more than we can afford begins again - only we call it the CARS program this time around.

Second, the amount of emissions that will be reduced by the program is miniscule. The program was seeded with $1 billion of funding. At an average rebate of $4,000, that amounts to the trade-in of about 250,000 cars. At last estimate, there were 250 million registered automobiles in the United States (according to the 2006 Department of Transportation studies). So this program will effectively trade out 0.1% of the “higher-emission” vehicles on the road for “lower-emission” vehicles. The billion dollars means that every taxpayer in the U.S. contributed an average of $10 to the program. Was it worth it? (Note: After this was written, Congress was on its way to approving another $2 billion for the program - so say good-bye to another $20 per taxpayer in your household.) It angers me that my hard-earned salary becomes tax dollars, which then get “re-distributed” to someone else so that they can buy a new car.

But the most insane thing about the program is the exercise that must be performed to “kill” one of these clunkers. In order to get their money from the government, and in an effort to assure that a high-emissions vehicle never sees the road again, a dealer must ruin the engine of the trade-in vehicle. The dealer must pour sodium silicate into the engine oil, start the car, and wait a few minutes until the oil turns to glass, seizing the engine, and ruining it for all time (video here). The technical description goes like this:

“Sodium silicate. Pour 2 quarts in a car's engine. Hold it at 2000 rpm. And in about 5 minutes, it's lethal injection to a motor vehicle.”
Put simply, the car gets euthanized. In exchange for taking a so-called “environmentally dangerous car” off of the road, this has the side-effect of harming the engine salvage and auto repair businesses. And it may also keep a nice, cheap, used vehicle out of the hands of someone who cannot afford to purchase a new car. Will the day come when the government makes it impossible to purchase a used vehicle for my sixteen-year-old? Will I be forced to pay an exorbitant price for a new vehicle only? In ten more years, will these same new cars suddenly be considered to be environment-threatening clunkers, and the process start over again?

Lastly, I can’t help but note the possible analogy between the “Cash for Clunkers” program and healthcare for our elderly under any new government program. President Obama has hinted that he favors the cessation of funding of extraordinary measures to save an elderly person. The proposed healthcare bill itself contains such a clause, right now (read pp. 425-429 here – thanks to Jim Perkins for finding this). This smacks of euthanasia for our senior citizens. Will we see a “Cash for Clunkers” program for our gray-haired folk in the near future? Or am I being “un-American” by mentioning that?
From the government website, citing reasons why Americans should participate in the program – “Reduce greenhouse gas emissions, carbon dioxide (CO2) from burning gasoline and diesel contributes to global climate change. You can do your part to reduce climate change by reducing your carbon footprint.” It’s clear that the government has bought into the lie that gasoline-powered vehicles contribute significantly to climate change. And did you notice that they called it “climate change” instead of “global warming”?

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