Sense on Cents

With the Senate’s approval of another $2 billion in funding for the ‘Cash for Clunkers’ program, the automotive industry will breathe a sigh of relief. I have nothing against the automotive industry, but there are aspects of this program that I find disconcerting both in style and substance.

While economists purport that this program will add measurably to next quarter’s GDP report, I would question the true integrity of that assessment. Why? GDP measures:

the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

Others have already put forth that the Clunkers program is merely accelerating demand. I concur, but will grant that a spark within the automotive sector may help generate benefits across other parts of our economy.

Are consumers increasing debt and redirecting purchasing power that may have gone elsewhere given the presence of this program? I guess we could make that case with a purchase made on credit at any point in the economic cycle.

My main issues with this program revolve around the requirement that cars being swapped are required to be destroyed. Certainly not all of those cars are worthless. Shouldn’t the implicit value of cars being destroyed be subtracted from GDP if we want to have real integrity in our economic measurements? Why? If goods being produced, in this case autos, are predicated on others being destroyed then it only makes sense to net the values of the autos.

My biggest issue with this program, however, centers on the fact that there is real value being destroyed via this program. Why couldn’t or shouldn’t the cars being swapped be provided to worthy charities? I saw this point raised early this morning and it hit me: how many charities would love to have these vehicles in order to do their work? In fact, how many of these vehicles would have gone to these charities if not for this program?

Not sure if it was divine intervention, but I received an e-mail later this morning from the Charity Assistance team at Donate Car USA addressing this topic.

I would strongly encourage anybody who may be interested in the ‘Cash for Clunkers’ program to review the costs and benefits of donating your vehicle. ‘Cash for Clunkers’ may very well have an immediate negative impact on charities who depend on car donations. Ultimately, I hope this program will actually raise the awareness of donating vehicles versus destroying them.

Let’s not forget those in need.

LD

This entry was posted on Friday, August 7th, 2009 at 11:09 AM and is filed under Auto Industry, General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.