If you’re looking for a defender of Cash for Clunkers, you’re not going to find it with me. I’m not against it in theory if I thought that it could do what its supporters said it would do. I don’t like the idea of taking functional cars off the road and I think that the money would have been better spent elsewhere. However, there is one argument against C4C encapsulated in this article that I consider to be pretty problematic: The notion that it has made el cheap-o entry-level cars too expensive for people without much money:

The Manheim Used Vehicle Value Index reported that prices reached record highs in September. The consulting firm that publishes the index blamed low inventories.

That’s bad news in Berks, where many shoppers seek inexpensive, used vehicles, especially during difficult economic times, said George Tabakelis, general manager of Perry Auto Service & Sales on Route 61 in Perry Township.

“Customers used to be able to find a good car for their son or daughter to take to college for $2,000 or $3,000, but now that same car may cost $5,000,” Tabakelis said. “It’s sad.”

He, too, blames cash for clunkers, which has led to fewer vehicles being available at used-car auctions, and the recession.

The cars that C4C is taking off the road are those that are old and get less than 18mpg. So for people looking for cheap, entry-level, high-mileage old cars with poor mileage, their hunt got a little bit tougher and more expensive. So for bigger cars, trucks, SUVs, and low-mileage muscle cars, C4C has become tougher. However, those aren’t college student outfitters (except perhaps bigger cars). This article (as well as numerous conservative, libertarian, and anti-Obama commentators) implies that this applies to the most basic of entry-level cars. Like the old Dodge Colt or Chrysler LeBaron that I used to drive. Those aren’t being scrapped.

The LeBaron got around 25 miles to the gallon and the Colt got 30 until the day it died. The only vehicles in our family history that would be eligible would be the vans and the convertible, neither of which are “college cars” (and I have my doubts that the convertible would have been eligible because even though it got very poor mileage, I think the model itself got good mileage and I think that eligibility is determined by model and year).

The only really good argument that C4C made college cars more expensive is that by taking old SUVs and station wagons off the road, it forced people that would buy those to instead buy smaller cars, increasing demand on those cars and driving the price up. I’m not really sure how much of a factor that is, though. People that get low-mileage vehicles typically do so for a reason. When it’s necessitated by extra cargo space or passenger capacity, smaller vehicles don’t do them any good and so they’ll likely bite the bullet and get something a little more expensive. It’s a bit murkier with people that wanted a 1990 Ford Mustang or Taurus but instead must make due with an Escort. Those people may drive the price of Escorts up a little bit, but you can still get a 90’s Ford Escort for $2,500. Clint got an early-90’s Toyota Corolla for less than $1,000 and it runs great. Even if Crayola, my late-90’s Ford Escort, were running well, I wouldn’t expect more than a couple thousand for it.

For those noticing an uptick in the cost of entry-level used vehicles, it’s possible that C4C is playing a marginal role in it through a cascading effect, but to that extent so is the economy as a whole on models completely unaffected by the program. The article above actually points out that fewer new car sales are making barely-used car sales more expensive. As I’ve been car shopping for the last several months, I’ve noticed the price differential between low-usage used cars and new cars has shrunk to become pretty marginal (and I say this as someone that never intended to buy new).

Back to the original point, as much as I’d like to blame a government program that I never really liked for an undesirable turn of events, I’m afraid I just don’t buy into the notion that Cash for Clunkers, despite its various flaws, has priced people out of the entry-level cars that they need. It may have priced them out of the entry-level cars that they want, if they wanted a Ford Taurus or a truck of some sort, but for the poor cash-strapped college student depicted in the article, they have other options.

-{via LoOG}-


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21 Responses to Cash and Clunkers

  1. web says:

    I know plenty of people (college, friends back in my hometown, etc) who chose to get a “bigger” low-mileage vehicle (station wagon, small truck, etc) as their first vehicle rather than, say, a Dodge Colt. My first vehicle was the family station wagon. When I got a vehicle to go to college, my dad helped me pick one out, and deliberately steered me to the “boat-sized” Cutlass despite certain vehicles having better mileage. (Arr, talk like a pirate!)

    The reasons were:
    #1 – they’re safer if there is a crash and more likely to survive said crash.
    #2 – traveling to college, or looking at needing to move apartments or roommate situations every 1-2 years, or having other needs to occasionally haul stuff, cargo space is a necessity rather than luxury.

    If you take away the “larger cargo capacity” vehicles, you force them into a situation. Many of them couldn’t afford even a $5000 car. Many of them would now be looking at the Dodge Colt even though it doesn’t meet “all” their needs, simply to get something with 4 wheels and an engine to be able to go to/from college, work, and home. Drive up demand, and you drive up price.

    The point is legitimate, Will.

    My major problem with “Cash 4 Clunkers” is that it targeted those vehicles based on mileage and ignored the fact that those vehicles are more useful than a Dodge Colt, remains. I would rather have had “Cash 4 Clunkers” apply to, say, any car older than 20-25 years.

  2. Kirk says:

    Cash for clunkers is a “broken window fallacy” way of helping the economy: pay people to break windows, then pay other people to fix them. It doesn’t work.

    With the economy in the toilet, the worst thing we can do is junk perfectly good vehicles.

  3. trumwill says:

    Regarding the larger-size college cars, you make some decent points as to why they would be required, but they’re still not what I think of when I hear “college cars”. The Chevy Caprice I had, a land-barge if there ever was one, also doesn’t really apply. A question of terminology, I suppose, but there’s a difference between saying “I’ve been priced out of the size car I want!” and “I’ve been priced out of entry-level vehicles!”

    I’m simply not sold on the cascading effect. While the percentage of low-mileage vehicles taken off the road may itself have been enough to push the costs upward of those models, and possibly applied enough of an upward push of comparable cargo vehicles that were not eligible (Subaru Forester, Toyota Rav4, etc) to make those somewhat expensive*. By the time you get to “every other model out there”? The upward push is pretty marginal.

    Cash for Clunkers was pretty limited in scope. Not just in the models that were affected, but in that the only people that could take advantage of it were people that had those models, did not need a car with similarly bad mileage, and were in the market for a new car when the deal was in effect. It’s numerically a large number, but as a percentage of used cars to push up the price as considerably as the article implies? It’s a bit of a stretch.

    Enough to push up the cost of all cars through a cascading effect? That’s an even tougher sell. So much so that the commentary I’ve seen on it doesn’t even address the issue and leaves people with the impression that college students and poor folks have been priced out of the market even for small, cheap cars.

    Had these articles and commentators even addressed the issue, I probably wouldn’t have written this post. But had they addressed the issue, it would have made their argument much weaker.

    * – Though, as someone who has been monitoring the prices of Foresters and Rav4s for the last six months, I have not seen it. If anything, they’re cheaper now than they were before C4C rolled out. I attribute this to the economy and the sudden need of a lot of people for some cash. It’s possible that there was a temporary spike because sellers were anticipating that they would be at an advantage, but if that was true it turned out not to be the case and prices came down shortly afterwards. I don’t think that most of these cars were actually selling for $2500 to begin with.

  4. trumwill says:

    Kirk, that about sums it up.

  5. Linus says:

    Although I have a bit of a hard time with the safety argument, I have to admit that it’s fundamentally valid. The necessity of cargo space argument, however, I find pretty bogus. You don’t have to be able to fit all of your stuff in your car for moves across town. Time is something college students have, and making multiple trips is not the end of the world. For those who move home or something over the summer, it might well be cheaper to rent out a storage unit than to pay the purchase price, gas, and insurance on a bigger car.

    People who talk about “needing” a certain amount of space for activities that constitute

  6. trumwill says:

    You don’t have to be able to fit all of your stuff in your car for moves across town.

    Having a compact hatchback would be awfully inconvenient and I can understand why someone would want more, but I agree that it’s not necessary. Particularly if you can keep your stuff to a minimum (I moved to Deseret in a compact that wasn’t even a hatchback). And you’re right about renting. I’ve become a big advocate of having smaller cars and renting on the off-case that you need something more substantial. Worked out well for me in Deseret.

    On the other hand, while I did move cross-country in a compact, I can definitely understand why someone else moving across country for school (like Web) would definitely prefer more space. While I would still put that in the category of “want” rather than “need”, I would differentiate between “practical want” and “frivolous want”.

  7. Linus says:

    Looks like I may have lost the end of my post. It was something like “People who talk about needing a certain amount of space for activities that constitute less than 5% of their driving should consider owning a smaller car and renting a specialized vehicle for those situations.”

  8. web says:

    You don’t have to be able to fit all of your stuff in your car for moves across town.

    If your college is more than about an hour and a half away, and many people I knew went at least several cities away if not out of state, you need more space and less trips. Even making an “extra” hour-and-a-half trip (3 hours total) is an entire afternoon once you consider loading/unloading times, especially in a dorm or apartment situation.

    A larger vehicle with good, usable space (station wagons or vans are best for this, though you can also pile people into the back of a truck) is also important for SOCIAL events. Going somewhere in several cars is fundamentally different (not to mention less fuel-efficient even if the singular vehicle is theoretically “low-gas-mileage”) from going in just one and being able to socialize.

    People who talk about needing a certain amount of space for activities that constitute less than 5% of their driving should consider owning a smaller car and renting a specialized vehicle for those situations.

    And realistically, if this were possible, it would be a suggestion. However, most auto rental places don’t do trucks (I’ve looked recently) any more. Renting a U-haul is incredibly expensive (again, based on pricing it in the past month).

  9. trumwill says:

    UHaul has been about $60/day wherever I’ve lived for direct returns. They advertise $20, but it goes up go $60 when you factor in insurance, mileage, and so on. I’m told Enterprise truck rental is actually cheaper. Given that I love Enterprise, I may use them next time.

    Most of the rental agencies do have passenger SUV’s and minivans, which could be good for some things but I would be pretty uncomfortable using them for moving stuff.

    One factor that makes things a little more complicated is that it used to be that you could get/rent a small trailer and attach it to all manner of cars. For one reason or another (I think legal liability may be involved), now you have to get a bigger car just to be able to tow even a small trailer that you used to be able to use in order to compensate for the small size of the vehicle. That’s another thing that encourages people to get larger cars.

  10. trumwill says:

    I forgot the above price includes/included 50 miles. One of the scams that UHaul runs is to put a “minimum mileage” on in-town use of their cars. Very frustrating in Deseret where I used maybe 10 miles per rental. Also, the insurance was required unless I had a $10,000 credit line. So despite the $20 daily charge, there was no way I was getting out of their paying less than $50.

    In Colosse, it’s quite possible that you’re going to go over 50 miles. The same is true in the Zaulem Sound area. The main reason I didn’t end up renting in Soundview was that in order to rack up mileage fees, I’d have to have found something in Soundview proper. Most of the stuff I was looking at to use for it was in Zaulem or points north. The only time I rented from UHaul was a trailer to get to Union City (10 miles) and back. Since most of the stuff I could have used it for was Craigslist furniture, it rarely made sense to rent a car. That’s one of the costs of not having a cargo vehicle is the things that it doesn’t make sense to buy or that end up costing you $50 more than you were planning to pay.

    I should have checked out Enterprise, though. Maybe they could have done better. Whatever the case, our next car will have towing capacity and we can use a trailer. The trailer ran $15/day. It’s too bad that smaller cars don’t have that towing capacity.

  11. web says:

    Will,

    rental places are putting the squeeze on recently. Enterprise in Colosse isn’t even renting trucks any more (at least that I was able to find, though they could just have been “all sold out” on rentals for the time period). UHaul’s “minimum” was sitting at $80/day, charging for over 50 miles (easily done considering mileage to/from UHaul itself), and requiring that you return a “full” fuel tank (another possibly $20-30). Inter-city UHauling is even more expensive by far and in odd ways.

    I’m not sure what the difference is up by you – maybe far less people moving during winter months? – but in Colosse, truck rental is bad enough that I was happier topping off a couple friends’ gas tanks, buying them lunch, and having them to help load/unload/move things as well rather than incurring the cost of the UHaul.

  12. econoholic says:

    Finding things wrong with the cash for clunkers program (or really any sort of subsidy) is a bit like predicting who will win the past week’s college football games after the fact. The market works well from the standpoint of economic efficiency, and deviating from it, will necessarily deviate from economic efficiency and cause hardship for someone somewhere that would have been just fine before.

    A subsidy is appropriate if there is some compelling non-economic interest. In this case, the compelling interest was bailing out the auto companies in a way that was less politically objectionable than just handing them cash. As W might have said: “Mission Accomplished.”

  13. web says:

    Too bad the auto companies they bailed out were mostly the japanese ones…

  14. David Alexander says:

    they’re safer if there is a crash and more likely to survive said crash

    I’ll take my chances with my small cars. I like the superior handling and gas mileage.

    cargo space is a necessity rather than luxury

    If you’re driving solo, how much cargo space do you need to move your stuff? My neighbour’s daughter goes to school upstate nearly three to four hours away from here, and she drives up in a Honda Civic. Hell, for something you only do twice a year, borrowing a larger car from your parents makes more sense then blowing the extra money on gas an insurance.

    Too bad the auto companies they bailed out were mostly the japanese ones…

    I’ve argued that C4C ended up dumping the excess inventory off dealer lots allowing manufacturers to resume building cars, which allows the furloughed labourers to return to work. In turn, it propped up car dealers, local media via advertising, and state and local governments with tax revenues from the car sales taxes and registrations.

    And for what it’s worth, Mazda, Nissan, Toyota, Honda, Hyundai, and Kia build cars in the United States…

  15. web says:

    If you’re driving solo, how much cargo space do you need to move your stuff?

    Depends. “Upstate three to four hours away” is about the upper limit of what’s manageable in the smaller car. She can still come home on the weekends to swap things out, bring laundry home, etc.

    Way Back When, I was (literally) stuffing my entire life into the Cutlass. I can guarantee it wouldn’t have even remotely fit into a Civic or anything similar.

  16. trumwill says:

    UHaul’s “minimum” was sitting at $80/day, charging for over 50 miles (easily done considering mileage to/from UHaul itself), and requiring that you return a “full” fuel tank (another possibly $20-30). Inter-city UHauling is even more expensive by far and in odd ways.

    Inter-city UHaul is rip-off. Or at least it is if you have a log of stuff. We found an even cheaper option and we didn’t even have to drive the thing.

    UHaul up here still charges $20 a day plus incidentals, which is what they charged three years ago. I wonder what accounts for the $60/80 difference.

    On the other hand, even $80 isn’t that bad when stacked against the perpetual cost of owning a car with that kind of cargo. It’s definitely easier in Colosse to exceed 50 miles than it is in a lot of other places, though. On the other hand, refilling the gas tank shouldn’t be considered — you’d need to do that anyway. And on a much regular basis if you owned a car that size.

    I think that Linus’s 5% threshold is not a particularly good one. I would say if you need it on average more than every other month or so, you should look into it. My commute in Deseret cost $5 less a day than it would have if I’d driven a car that got 20mph instead of 30 ($4 in Zaulem). That’ll pay for a lot of rentals (and that’s not even counting the cost differential between the cars). On the other hand, college students are less likely to rack up the miles to justify it.

    From there, it depends on the life-span of the car. If you’re going to keep the car for a long time, it can be worth paying a few extra thousand dollars over the lifetime of the car. But if you’re already buying an old and inexpensive car (ie a “college car”) and you’re not going to have it for very long, spending $100 a few times a year to rent a UHaul may be worth it.

    Way Back When, I was (literally) stuffing my entire life into the Cutlass. I can guarantee it wouldn’t have even remotely fit into a Civic or anything similar.

    Depends largely on how much stuff you have. It’s hard to keep the amount of stuff to what will fit into a compact. Not impossible, though, if you’re dealing with furnished pads.

  17. web says:

    Will,

    remembrance of what constituted “furnished” in the SoTech dorms is probably post-fodder.

    As far as Linus’s “5%” figure, much of it depends too on where the kid is going, how often, and what other factors enter in.

    For instance, one of the nice things about giving a kid a giant boat crapcan, even if it “wastes” fuel, is that the insurance cost stays low. Comparing the difference between a $2500 and $5500 car is a big difference out-of-pocket, takes quite a long time to “offset” in spending less gas, leaves you open to not having the cargo space when needed (whether the cargo space is for packing 6-7 people into the car for social occasions, or moving stuff to/from home from dorms, or something else), AND also could easily be itself offset by an insurance bill that costs roughly $500 (roughly speaking based on what mine bumped my parents’ insurance by even when they only had me as an “authorized”, not primary, driver on the oldest wagon we had) per year less.

  18. trumwill says:

    Comparing the difference between a $2500 and $5500 car is a big difference out-of-pocket, takes quite a long time to “offset” in spending less gas,

    I don’t follow you here. It’s not a matter of needing to offset the cost of the smaller car with better mileage. The smaller car is the cheaper car. Pretty consistently. If you buy a small car, you save at the outset and save on gas. The loss only comes when you have to rent.

    also could easily be itself offset by an insurance bill that costs roughly $500 (roughly speaking based on what mine bumped my parents’ insurance by even when they only had me as an “authorized”, not primary, driver on the oldest wagon we had) per year less.

    Not sure what you mean here. Which car was more expensive than which car by $500? The wagon was cheaper than the Cutless? Or is there another car involved?

    There is a general claims trend in favor of larger cars over smaller ones, though, and that should be taken into account. Some of that is accounted for by the demographics of people that drive small cars and larger cars. I can’t speak to your Cutless/wagon experience, but my wife’s largey Camry is more expensive than my smally Escort not just in collision coverage (which one might expect) but also on strict liability. Further, when looking at car classes that sorta control for demographics (“sports cars” or “luxury cars”) the claims trends become statistical noise.

    Of course, that’s looking at IIHS numbers on claims (both frequency and amount) . The amount people actually get charged on insurance varies wildly. Every insurer has their own secret formula where they balance a car’s profile and a driver’s profile differently. The Toyota Yaris, for instance, is cited as both a low-cost insurance car and a high-cost insurance car, depending on who you ask (also depending, I’ll bet, on what precise insurance you’re buying). Some rake in higher rates for particular types of insurance (bodily injury) but not others (property damage). Cars that cost more to repair will cost more to insure. There are a lot of variables at work.

    You’re right about one thing for sure, though: people should take insurance rates into account when getting a car.

    None of this is to say that buying a larger car is necessarily a bad idea. It really depends on a whole lot of factors. Most of the time it’s not going to be the cheaper option, though sometimes it is. And other times it will be worth the extra cost for the added convenience and capability.

  19. trumwill says:

    Regarding the Sotech dorms, I thought that they were reasonably well furnished. Despite living in town, the only furniture I brought in was The Immortal Black Futon.

  20. web says:

    I don’t follow you here. It’s not a matter of needing to offset the cost of the smaller car with better mileage. The smaller car is the cheaper car. Pretty consistently. If you buy a small car, you save at the outset and save on gas. The loss only comes when you have to rent.

    Sorry Will, but no.

    The “smaller car” with a cost of $5000+ is not “cheaper.”

    – It’s $2500 or so more expensive up front (which the kid may or may not have on hand).

    – It “makes up for” some of this to the tune of perhaps 30-40% better fuel efficiency. How quickly this “makes up for” the initial difference will depend on driving habits (heck, you can get better mileage out of either car with better driving habits anyways).

    – It definitely costs more to insure. Significantly more, in fact. Again, I base this on analysis of previous research into insurance costs. Putting me onto a car valued at $3000 cost my parents $500 every 6 months, as a “secondary” (aka “authorized but not every day”) driver. Putting me on as a secondary to the family’s more expensive car (at the time, a $6,000 model) would have more than doubled that. Putting me on as a primary driver would have taken either figure and roughly doubled it again. (Small wonder my parents saw good financial sense in making me wait till I was 17, rather than 16, to get my license).

    I ran the numbers recently when considering replacing my aging vehicle. The result was that buying car of increased “value” (upgrading from a 12-year-old model to a 3-4 year old model, roughly twice the KBB value) would significantly increase my costs. Not quite double, but in the 50-75% increase range still.

    Again, I can buy an awful lot of gas for $1000 less in insurance premiums. I’m betting, even at the difference between 18 mpg and 25 mpg, that’s probably (financially speaking at least) worth it.

  21. trumwill says:

    The “smaller car” with a cost of $5000+ is not “cheaper.”

    Maybe we’re talking past one another. Of course a car that costs $5000+ is not going to be cheaper than a larger one that costs $2500. Well, I mean, it could be cheaper, but it’s not likely the case.

    What I’m saying is that a smaller car that costs more than $2000 more than the equivalent larger car is an aberration. I thought that you were responding to my early comments about sticker prices except that you had misread me and thought that I was talking about a premium for smaller cars.

    If you’re talking about a more expensive smaller car over a less expensive larger car, that changes the equation. But I’m operating under the assumption that the smaller car is cheaper. That assumption is correct the vast majority of the time when comparing apples to apples (equivalent makes, reputations, model years, etc). As far as the KBB value goes, the larger cars are going to have “increased value”. There are some exceptions, but they’re exceptions and even then it’s not the case that you’re spending significantly more for the smaller car. You pay more for better mileage when you’re buying a hybrid, but not when you’re buying a compact. In the latter case, you’re paying less.

    I’m going to table the insurance discussion for now. You have your anecdotal experience (a whopping $1000 difference) and I have my anecdotal experience (Crayola would not even cost much over $1000 to comprehensively insure for a year). As it turns out, I need to talk to my insurance agent anyway and I’d been intending to ask them what kind of insurance rates I can expect with the models I’m looking at. While I’m there, I’ll try to run some comparisons between larger and smaller cars. I won’t be surprised if they do favor large cars, though I will be surprised if they favor them more generally by the amount that that you were being charged extra. It’s a fascinating subject. One that I’d be interested to know the answer on for reasons going far beyond this conversation.

    I do have one question, though. Were you comparing the insurance rates on an older, larger vehicle to a newer, smaller one? If so, that would account for a big portion of the difference as newer cars are much more expensive to insure. And it would account for why you’re talking about cases where the smaller car is more expensive than the larger car. Buying a new car just because it is smaller and gets better mileage is a money-loser, for sure. I’m looking at situations where one is needing to buy something regardless and are just deciding what to buy.

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