Filed Wednesday, August 5. 2009
Many people have purchased cars recently and some are already touting Barack Obama’s “Cash for Clunkers” program as a success. (From my 400th column for MidwestBusiness.com.)
I’m not so sure. The program may not be as successful as some are making it out to be. It may be too early to tell what will really help the economy in the long term. It’s funny how all the “overnight” economists are saying this is a great program. It’s sad that some of the legitimate “business economists” are saying this is a great program as well. Who are the people buying these new cars? Are they equipped to make the payments? Will they be winding up defaulting on their loans six to 12 months from now just like those who got sub-prime mortgages? This is a valid observation I have heard from several people in the last two days. Do I put a lot of faith in these concerns? While it’s wait and see right now, at least let’s look at it from all perspectives. Payments vs. No Payments Those trading in 1998 and 1999 Ford Explorers, Jeep Cherokees and others probably had all of those cars and SUVs fully paid off. Now they’re buying a new car probably with some type of monthly payment. More important, will they be able to afford it six months from now? Here are the top 10 models being traded in now, according to Yahoo!: - 1998 Ford Explorer
- 1997 Ford Explorer
- 1996 Ford Explorer
- 1999 Ford Explorer
- Jeep Grand Cherokee
- Jeep Cherokee
- 1995 Ford Explorer
- 1994 Ford Explorer
- 1997 Ford Windstar
- 1999 Dodge Caravan
While this is a dilemma I don’t see many discussing, it’s still a very real issue. While getting a new Ford Focus, Chevy Cobalt, Honda, Toyota Prius or Corolla may help people with their monthly gas bill, they are also picking up a new monthly payment they didn’t have to worry about before. What about loan interest rates? Are any of these cars getting 0 percent financing any more? If not, there is another chunk of money being collected out of the consumer. Let’s do the math again. An older car equals more cash for gas, yes, but likely no monthly car payment and a lower insurance premium. A new car equals less money for gas, yes, but more money for new monthly car payment along with bank interest (if you don’t have 0 percent financing) and higher car insurance because it’s a new vehicle. As they say on TV: “Do the math.” What’s Really Choking America’s Recovery Today There should be no mystery why our economy is sputtering today. Many people have been laid off from their jobs and were replaced by foreign workers here and abroad. Many people have taken lesser jobs and are underemployed. While they don’t show up on the unemployment statistics, they do show up when it comes to state budget shortfalls because the tax base and job market have eroded. I wrote several columns about this. It’s now coming to light with the mainstream media and more important with the mainstream economy. Too late. Thousands of people with degrees and cutting-edge skills have lost to cheaper labor. Company CEOs complaining that people aren’t buying their products should have thought about this when they were laying people off and thinking that cost reduction was going to be great to get their year-end bonus. Where are those executives now? Are they retired with golden parachutes? Are they still working? Are the best and the brightest workers currently in all the corporations? I would say there is a lot of talent sitting on the sidelines. We supposedly saved thousands of jobs in the automobile industry. That was a good trade-off. Lay off people with cutting-edge skills, replace them with cheap labor and then bail out the automobile industry so we can save Industrial Age jobs that are overpaid and don’t even make a world-class product. While “world class” is a perception, perception is reality when it comes to putting a lot of money down on a car. The Long-Term View So we pushed a lot of new cars this month. That’s great. What’s going to make them sell next month? Another $4,500 rebate? Why didn’t we just send the original $60 to $70 billion of the automobile bailout to consumers in advance? If we did that, you may have gotten $20,000 as a rebate for a new car. A short-term fix like this new car program is not going to fix long-term mistakes in corporations that have occurred in the last several years. These executive mistakes have permanently changed the economy. Carlinism: Getting a partial rebate to take on a lot of debt does not make cents. It costs dollars. Not modified
|