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Cash for Clunkers: Tax Dollars Help Foreign Car Sales

August 5th, 2009
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11.05.2010 updated broken gov link with archived PDF file

“Cash for Clunkers” – Tax Dollars Help Foreign Car Sales

original article written by Net Advisor

The Obama Administration has been gitty over the “Cash for Clunkers” program where tax payers can take their “old” gas hog-non-environmentally friendly vehicles and trade it in for a new qualifying vehicle. In exchange, the US Gov to pay up to $4,500 for the purchase of a new qualifying vehicle.

Cash for Clunkers Eligible Trade-In Vehicle List

The US Government has allocated initially $1 Billion for this cause, and the results has bumped up auto sales, or were these people going to buy anyway, and got a little incentive to buy now? It also assumes that the old car wouldn’t trade in for $3,500 to $4,500 on its own.

Senator Dianne Feinstein, (D-CA) held a press conference on 08-03-2009 and appeared very excited to report many of the clunkers traded were more gas hogs (SUV’s and trucks). The California Senator forgot to mention that people have been trading in American cars for mostly new foreign cars.

Further, President Obama (D) stated that the “Cash for Clunkers” program also “strengthens the American auto industry (video).” Unfortunately what President Obama had also left out is that “Cash for Clunkers” has greatly helped the Japanese auto industry more than the U.S. auto industry: Toyota Corolla Earns Top-Selling Spot in ‘Clunkers’ Program.

According to Reuters, 4 of the top 5 traded in vehicles have been replaced with Japanese models from Toyota and Honda. Thus “Cash for Clunkers” has been a great program to finance the purchase of foreign cars.

Media Up Sells Cash for Clunkers
ABC News completely ignored the fact that foreign car sales had been leading the “Cash for Clunker” program. ABC acknowledged that GM and Chrysler sales are still down from a year ago and Ford sales are finally in the positive. What was also omitted was that Ford is the only American car company not in bankruptcy or under government control. So, Ford has better car sales and it didn’t receive a bailout, or filed for bankruptcy? Yes.

Does “Cash For Clunkers” Really Help the Environment?
One of the big pushes for the Clunker program is to get poor polluting cars off the road and have more fuel efficient cars on the road.

President Obama stated (video):

“This gives consumers a break, replaces dangerous carbon pollution and our dependence on foreign oil…”

— (Source: ABC News. Text version paragraph 11).

We know that foreign cars are outselling American cars, even with a massive bailout of GM and Chrysler, so does this program really help the environment? Not likely.

The amount of CO2 saved from trading in “clunkers” is estimated at 365,000 metric tons, where China has been increasing its CO2 output by 644 million metric tons per year. Thus what we save in the USA, China is belting out far more pollution to offset any “environmental savings.” Keep in mind that this assumes that China is only polluting country. Factor in the rest of the world, and the savings to the environment is close to nil in perspective.

Will Cash for Clunkers “Reduce Our Dependence on Foreign Oil?”
Please again refer to the video and quoted Obama text cited above. As of early 08-04-2009, there were some 157,000 official vehicles counted in the Cash for Clunker program, and government officials expect as many as 130,000 more cars to be traded under the existing program.

So, will trading in cars that once got an average of 18 MPG to now 22 MPG for passenger cars (under this Clunker program) “reduce our dependence on foreign oil?” Let’s look at this a little further: If you are purchasing a new truck or SUV under the Clunker program, your previous vehicle had to get a combined average of 18 MPG right?

The new (SUV/Truck) has to get at least 18 MPG and can offer as little as a 2 MPG improvement over the old one to qualify for $3,500. With a minimum 5 MPG improvement, you can qualify for $4,500 (Source: Autotrader.com). Thus, your old gas hog might qualify for your new gas hog.

So, how is saving zero MPG to four MPG on 287,000 cars and trucks going to “reduce our dependence on foreign oil?”


It isn’t going to change our dependence on oil at all.

In fact, oil prices have surged as of late much of this due to the declining US Dollar. As the US Dollar decreases in value (largely due to record deficit spending), oil prices increase (study). Current oil prices.

$50 Million to Run Cash for Clunkers
Of course any government program must come with some slush money to operate it. Under the terms of the program, the US government has allocated 5.00% (FIVE percent) of the $1 Billion or $50 million for “administration” expenses for the program [Title XIII, Section 1302(j) – (see bottom of page eight)].

The President has sought to reduce $100 million in budget cuts. How about saving the $50 million in cash for clunkers administration cost since the program is already under the government’s control. Why can’t existing government (DOT) employees have another job task to do? No, instead the DOT created and staffed an entirely new organization with three divisions to administer the clunkers program.

No Social Security Card Required
The Cash for Clunkers program has a little loophole. ANYONE can partake in the program. In fact you can drive your old qualifying car from Canada or Mexico into the US (no one will stop you at the border anyway) and get U.S. tax payers to help fund your new Toyota.

“Perhaps, one of the most disturbing parts of the Clunker program is that the recipient of the $4,500 doesn’t need to provide a Social Security number. So, it is possible for illegal immigrants, as well as resourceful folks from Canada and Mexico, to cross our borders, trade in their clunkers, and get American taxpayer dollars. But don’t expect anyone in Congress to admit that taxpayers are paying around $6,000 to provide a $4,500 rebate for a foreigner or illegal immigrant to buy a new car.” (Source: Fox News)

So where is this government (tax payer) money for “Cash for Clunkers” coming from?

Remember back in the fall of 2008, there was this massive bank bailout plan called the Troubled Asset Relief Fund (TARP)? We’ll, guess what?

All of the money for the Cash for Clunkers program is coming from TARP funds.

— (Source: U.S. News & World Report)

Question: But wasn’t that money to be used to bailout the banks?

Answer: Yes.

Question: So why is the money being used to finance even foreign car purchases?

Answer: Did you hear the government is running the program?

Where does it say that the government can use TARP funds to be used to finance car purchases?
Read the definitions of Public Law 110-343 (A) and (B) of how TARP is to be utilized. Where in the official scope of TARP states that such funds can be used for outside its legislative intent?

Obama to Increase Fuel Standards
Earlier this year, Obama announced a substantial increase fuel standards. The first company to support the new fuel standards? Toyota.

Granted many foreign car companies have (non-union) plants in the USA which begs the question: How come foreign auto companies can operate in the USA by American workers and NOT be bankrupt nor require a bailout?

$15,000 Government Fine for Clunker Program Violations
The program does have a big down side to the struggling car dealers. In the event any person (includes auto dealers) who violate any of the terms of the program is subject to a $15,000 civil penalty due to the US Government [Title XIII, Section 1302(e)(2)].

So if a dealer even accidentally violates the terms, they have to pay the USG $15,000 per violation. So what if the dealer is GM or Chrysler and they are already under government control and tax payer funded. So is the government fining them self?

Auto Dealer Complaints
Auto dealers apparently have complained that there have been problems with government paperwork stating it takes “five hours of paperwork for each car.”

Dealers must also front the purchase of the deal and wait for that up to $4,500 check from the U.S. government. Overall, it seems that car dealers welcome the government program to spike auto sales. (Source: KRQE-TV13, New Mexico, USA).

“Dealerships put up the cash for the rebates after being told by the Obama administration they would be paid back within 10 days of the sale…You simply can’t ask businesses to front $200,000, $300,000 for any period of time,” Rep. Martin Heinrich, D-N.M…”

— (Source: KRQE-TV13, (video), New Mexico, USA)

UpsideFord and Foreign Car Sales Up
Short term auto sales have gone up, but the Obama Administration can’t fund this program forever. Just like there was a spike in retail sales during the Bush stimulus, when that money was spent, the economy moved back to the direction it was originally heading – down. So when the Clunker program ends, expect auto sales to drop off.

The economy seems to be stabilizing, but the Obama Administration needs to think more before it signs laws.

If all it took was a $1 Billion government incentive to get people to buy cars, why are we spending $50 Billion to bailout GM and who does that benefit again? The taxpayer who’s flipping the bill?

Question: The Obama Administration intends to help?

(a) Consumers.
(b) USA manufacturers.
(c) Foreign manufactures operating in the USA.
(d) The Obama Administration (Government).
(e) Hey it’s socialism, everyone wins…But, who is going to pay for all this?

Answer hint to e: See (a) for who is going to pay.


Financial Disclosure:
As of post date, one or more author’s clients currently holding long position(s) in Ford.

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