The Poisoned Apple

That is how I think of the U.S. government's plan to eliminate gas-guzzler cars. Cash for Clunkers blew through a billion dollars in less than a week and now Congress has allocated another two billion dollars to this program.

Even as supporters of Congress and the President try to spin this effort as a success, we have to ask is it really? Lets look at some things.

First, the biggest recipients of Cash for Clunker money were Ford and Toyota. Neither received any money under TARP like GM and Chrysler did. Its irrelevant that Ford had the most vehicles turned in, mainly Explorers - hard to fault people still smarting after the Explorer/Firestone tire fiasco. Two companies not run by the U.S. government took in the lion's share of the subsidy by selling Escapes, Fusions, Camrys, and Corollas to name a few brands.

Second this infusion of cash came too early for any new economical vehicles from GM or Chrysler to be on the showroom floor. Only the Dodge Caliber cometed with Ford and Toyota products for top sales. The new models are not expected until next year at the earliest. But when they do hit the showroom floor, will there be a market? It will not be a large market since Cash for Clunkers has already replaced the vehicles consumers think they need to replace. In these tight times when unemployment is high and people are dropping out of the job market because the market is so bad, the demand will be further dampened.

So I expect next year for GM and Chrysler to be very hard on their bottom line. Which increases the chances that both companies will head back to Washington DC to beg for more money like Fannie Mae did this week. I wonder if Congress will let them use any of those new VIP jets? After all the leaders of Chrysler and GM are technically government employees.

In the long run it would have been far wiser and cheaper to the taxpayer to have let Chrysler and GM fall into bankruptcy and re-emerge reorganised around a more profitable framework. Just as it would have been wiser not to have rushed through Cash for Clunkers. But it seems that is all this administration is about, to rush forward and 'solve' the immediate problems without thinking.