Cash for clunkers

By now you may have heard that the "Cash for Clunkers" program is broke (or not depending on who you listen to). This post is NOT about that issue. The story on that issue is not yet complete. I may post about that in a week or so when all of the facts are out.

Back about a year ago, I posted an entry about the cost of a gallon of gas (about $4 at the time). A year ago when gas was $4/gallon, I made the bold prediction that "the subject of gas prices will be quiet again." (see here).


Well, let's check into the current situation. People have criticized American automotive companies and said that they focused on trucks and SUV's. During times with high gas prices, this hurts auto sales and, according to critics, helped cause the downfall of GM, Chrysler and Ford. However, prices are down now, around $2.20 or so depending on the day. It now appears that SUV sales are back up (according to Bloomberg) and truck sales are also on the rise (see here). Maybe American car companies were focusing on the right markets after all.

Of course, you have to acknowledge that everyone wants to save gas and go green right? Well, Toyota is having a tough year just like the American companies and has decided to close a Mississippi Prius plant even before it opened (see here). In fact, Motor Trend magazine says Toyota is no long profitable in the US. Seems it's not just American cars that are hurting.


So what does this have to do with "Cash for Clunkers"? The program was initially designed to improve fuel mileage on the highways by encouraging consumers to get rid of older, less fuel efficient cars in favor of newer, more fuel efficient cars. A side benefit is that the ailing automotive market (both domestic and foreign) gets a short-term boost.

The program has been tried in other countries as well. Countries such as Slovakia, France, Germany, Spain and Italy have all unveiled a cash-for-clunkers program at various times in the last year according to this NY Times article. And the program has some history as France had a "similar incentive program ... from 1994 to 1996."

How successful will the program be? According to the same NY Times article, the "plan produced a comparable sales bump initially." Sounds great, right? Well the rest of the sentence goes on to say that the initial sales bump "was followed by a severe drop in 1997 and 1998."

So here's my prediction for 2009 and it will basically echo the prediction from 2008. Americans are less concerned about fuel efficiency than they are about the size of the vehicle (see SUV sales and truck sales above). People will trade in cars under the plan and get minimal improved gas mileage (2 mpg improvement for trucks and 4mpg improvement for cars is the minimum to get the cash). More importantly, these people will take out 4, 5 or 6 year loans to pay for these cars and find that they have trouble making the payments or making their other payments (e.g. mortgage). Next year, we'll all be worse off.

And the country will be no greener than it is today.

Fly or drive?

A couple of weeks ago, the heads of the three big auto companies (GM, Ford and Chrysler) showed up in Washington singing the old "Brother can you spare a dime" song. Trouble is, they showed up in private jets. Congress railed them and sent them packing back to Detroit without a dime to show.

Looks like this time they've learned a lesson and will drive instead. (see here). I know I will have folks who disagree, but I'm not sure that having them drive is better.

The question is, if you were a stock holder, how would you want Mr. Wagoner to spend his day, driving or conducting business. Oh sure, he could go in a big car, hire a driver and sit in the back and conduct business. I can see him shuffling papers, talking on the cell phone with a fax and computer on his passenger side desk at 70 mph. But doesn't it seem that he would be more productive in an office where he could walk around even if it was at 30,000 feet.


It certainly was bad PR to show up in a private jet and ask for money. But I think the congressional reaction was a little off key on this one.

Unfair advertising - Update

Back in April, I posted this entry about a local car dealer who was running unfair ads. The ads resulted in multiple law suits (reportedly 14) and customers who could not afford the cars. They purchased a car with very low payments, that soon escalated. In one report, the payments started at $47/month, then escalated to over $700. Over 50 complaints were filed with the BBB.

Well, the lawsuits have taken their toll on the dealer. The dealership filed for bankruptcy a few weeks ago. He owes hundreds of creditors and dozens of employees have lost their job. (see here for details). Now, the dealership has closed down completely.

My initial reaction is that it couldn't happen to a nicer guy (sarcasm). The guy doesn't deserve to run a car dealership. Some of the creditors who lost money are the TV stations that ran the ads and the advertising agency who created the ads. These are the folks that I identified back in April that I thought should share the burden.

However, a lot of individuals lost money too. They thought they were getting a good deal, then got stiffed. Now, I'm a believer in "Buyer Beware", and I think these people shouldn't be made 100% whole, (even though I said that in April), but this deceptive deal has cost them more than it should have.

Remember, if you see a deal that's too good to be true, it probably isn't true.

Unfair advertising

A local car dealer had some ads on TV, saying you could by a car for $44 per month or even (most recently) no car payments for two years. The ads featured a lot of yelling, and even more fine print. I used my DVR to slow things down and read the fine print. Seems that after 3 months, the $44 per month went up and the two years with never a car payment wasn't really available. To me, the ads were confusing at best, deceptive at worst.

Now, at least 50 people have agreed with me. Unfortunately, they found out the hard way. They bought cars and then saw the car payment balloon from $44 to $478. When they tried to turn the car in (as promised by the loud spokesperson), the dealer suggested they refinance - no bank will refinance when you owe more than the car is worth.

So now, the SC Dept of Consumer Affairs is in the game, writing an official letter to the car dealer and giving them 10 days to resolve the problems. The car dealer says the problem is with the disclosures and that both he and his ad agency believe the ads and disclosures are proper. I don't think he's trying to spread the blame to his ad agency yet, but time will tell.

To me, there are several things wrong here. First, any consumer who believes you can buy a car for $44 or no payment, should not be allowed to buy a car. Probably not allowed to even drive. It's just not safe having an idiot like that on the roads.

This doesn't excuse the dealer. I could probably sue them because I had to watch those loud, obnoxius ads. My blood pressure went up each time they aired and I'm sure it shortened my life expectancy. The ads were misleading and the dealer should have to buy back each car that was sold in the last year. The purchase price should be every dime the consumer paid (including interest).

However, the buck shouldn't stop there. The ad agency that created these ads is also guilty. As a professional group, they should understand and avoid deception. (This doesn't remove guilt from the agency). I'd like to see a list of other companies for whom they developed ads and I'll avoid those companies too. If you're choosing an ad agency, you should choose a reputable one. Their penalty should be equal to whatever they were paid for these car dealer ads.

And finally, the TV stations that showed the ads should share in the blame. They should have known that these ads were just flat wrong and should never have aired them. They should give up the revenue they earned for the ads and be forced to run apologies. Maybe they should even be forced to run shows with no ads (Star Trek or Andy Griffith would be a good idea)

See the story here.