Cash for Clunkers, the next “bubble”

What are the unintended consequences ,if any, of Cash 4 Clunkers?  That is the question asked by a commenter at Wizbang.  If the Community Reinvestment Act allowed people to buy houses they could not afford and lead to the housing bubble will Cash for Clunkers do the same for the automotive industry?  Common sense tells me that people are driving “clunkers” because they cannot afford a new car without an infusion of $4,500 from the taxpayers.  How many people  will default on their  new “green & clean” car in a few months?

Alan Reynolds, Cato @ Liberty, has some tips on how to “game” the program and buy a gas-guzzler or SUV:

First of  all, with Chrysler and GM dealerships folding, it should be easy to buy a mediocre Chevy Cobalt or Dodge Caliber for about $10,000 more than the voucher. What you do next is sell that boring econobox, even if you end up with $1,000 less than you paid — that still leaves you with $3,500 of free money, courtesy of taxpayers.  As this  process unfolds, the flood of resold small cars will make it even  harder for GM, Chrysler and Ford dealers to get a decent price for small cars, because of added competition from new cars being resold as used. That’s their problem, not yours. So, take the $9,000 net from reselling the crummy little car plus the $4,500 from Uncle Sam.  Then use that $13,500 to make a big down payment on a used Cadillac Escalade,  Toyota Tundra pickup or Corvette.

Advertisements

Leave a comment

Filed under Uncategorized

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s