Monday, August 24, 2009

All Clunkered Out

The Transportation Department is ending its "cash for clunkers"
program today, but the deadline shouldn't pass without recording a few
economic and political lessons. To wit, the feds can't even give away
money very well.

The $3 billion plan is being hailed in Washington as a great success
because so many Americans sought to get a $3,500 to $4,500 check
financed by other taxpayers in return for trading in their old car.
Transportation Secretary Ray LaHood boasts that the program has been
wildly popular and provided "a lifeline to the automobile industry,
jump starting a major sector of the economy and putting people back to
work.'' But it's hardly miraculous that some Americans would be
willing to apply for "free" money to do what they probably would have
done eventually anyway.

View Full Image
Associated Press

A Cash For Clunkers sign hangs on an upside down automobile at a
dealership in Detroit.

Meanwhile, the program has proven to be an administrative fiasco, as
the central planners at Transportation vastly underestimated how many
people would apply, assigned too few people to process applications,
and had to scramble to borrow workers from the likes of the Federal
Aviation Administration to process claims. Auto dealers have
nonetheless told of having to front the money to car buyers as they
wait and wait for Uncle Sam to get around to paying them.

The Milwaukee Journal Sentinel quoted Brad Schlossmann last week as
saying that he had received "no payment whatsoever" on 120 clunker
deals at his Milwaukee Honda dealership. Russ Darrow, who owns 15
Wisconsin dealerships, reported having done 400 or so clunker deals
and been paid only for a few of them. That story has been repeated
from coast to coast. And now that the program is ending in a rush,
things could get worse. As buyers sprint to meet the deadline, dealers
can't be sure they'll get their paperwork in before the $3 billion
runs out. Some dealers, and even the likes of General Motors, could
have to write off clunker credits if they aren't reimbursed.

"We do not know how many deals are in the pipeline. We don't know how
many dollars are left in the program at this very moment," Ted Smith,
president of the Florida Automobile Dealers Association, told the
Associated Press this weekend. "That's fundamental to the health of
the dealerships that are participating. If you run out of money before
you run out of deals, that's not a good situation." Welcome to the
vagaries of politically motivated—and subsidized—sales. The
politicians care mainly about getting credit for the giveaway, not if
some hapless dealers are left holding worthless paper when the money
runs out.

As for helping the auto industry, the proof will be whether Mr.
LaHood's jump start to sales is sustainable. The idea that a temporary
subsidy program will launch the auto industry onto some new, higher
sales and production plane defies logic. More likely, the program will
merely have concentrated sales over a shorter period, as buyers either
postponed purchases once they learned the program was in the works, or
accelerated them to meet the subsidy deadline. The program is another
bow to the now-reigning Washington policy illusion that the key to
prosperity is force-feeding consumer spending, rather than creating
incentives for Americans to invest and take risks.

We keep hearing this is a brave new era of public confidence in the
virtues of government planning. But the lesson of cash for clunkers is
that if this government can't manage a free lunch, it can hardly be
trusted to decide whether you can have a hip replacement, and how much
it will pay for it.

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