C4C may come back

[CaminoRacer]

https://www.motortrend.com/news/cash-for-clunkers-revival-2020-car-deals/?aps=XXXX

Potential Cash for Clunkers Revival Could Mean Big Car Deals Are Coming
Another government-incentivized old-car-trade-in program would bring a needed boost to the auto industry.

People aren't buying cars right now and that has inevitably created flashbacks to 2008 and 2009, when the financial crisis resulted in a tumultuous drop in auto sales and ravaged automaker bottom lines. General Motors and Chrysler underwent bankruptcy restructuring and Ford mortgaged the farm, so to speak, just to avoid direct government intervention. Other automakers saw financial restructuring and stayed solvent, but barely. But it was the government's Cash for Clunkers program that ran from July to August 2009 that helped stimulate new-car sales and kickstart the economy—this is important, as we could see a similar policy enacted again soon.

During the current period when dealers have closed their showrooms, consumers are staying at home, and many have lost jobs and income, thoughts drift to how car sales can be encouraged again when it is once again safe to produce and sell new vehicles. A Cash for Clunkers repeat has come up as a natural option, although this time to drag the auto industry out of a crisis of a very different making.
So, What Was Cash for Clunkers?

For those who don't remember, it allowed consumers to trade in old vehicles for newer ones, promising a baseline incentive for nearly any worthless old car that could make it to a dealer lot and met certain fuel-economy criteria relative to then-new vehicles. One goal of the program was to spur trade-ins for new cars by giving buyers a voucher for a few thousand bucks (up to $4,500) no matter what pile they traded in; another was to get primarily older, less fuel-efficient vehicles off the road by tying the trade-in incentive to those aforementioned efficiency parameters. Adam Jonas, the outspoken auto analyst from Morgan Stanley, tells Barron's in an interview he does not think carmakers will fail or go bankrupt as a result of the current situation, but the industry will need support to get going again, restart factories, and jolt buyers back to showrooms—and the solution could once again be great deals supported by the government.

"We expect a Cash for Clunkers program to be much larger in scope and longer in duration than what we saw. In 2008 and 2009, we saw a $3 billion package that stimulated about $14 billion of purchases. This time around we're expecting about $10 billion of stimulus that drives $50 billion of purchases and adds about four million of SAAR [seasonally adjusted annualized rate, a measure of car purchases] over a six-month period beginning in the fall and then into early 2021," Jonas said.

There are some key differences in today's landscape. Jonas says politics plays a role: The original clunkers stimulus program in 2009 happened after the 2008 election, while this crisis occurs in the months leading up to one. And many of the key swing states in the 2020 presidential election are also key automaking states such as Michigan, Ohio, Indiana, Illinois, Texas, Kentucky, Mississippi, and Alabama.

Ramping up a new clunkers program this time has the advantage of using the 2008-2009 financial crisis as a precedent. We saw that it worked. We also have the logistics largely laid out.

The other big difference is that plants were still building cars and dealers were still selling them in 2008 and 2009, just in substantially fewer numbers. Conversely, the current pandemic forced plants and retail outlets to shut down temporarily so companies have no production to offset fixed costs, while stocks are slowly dwindling at dealers.

Let's Start With $5,000

For discussion purposes, Jonas says consumers could be given $5,000 to scrap an eligible old car and buy a new one. There likely would be other criteria hinging on things such as household income, the amount of U.S. content in the vehicle, and the types of vehicles that are eligible to scrap and also to buy. Like the original Cash for Clunkers, it is a chance to promote more fuel-efficient vehicles, perhaps by targeting 50 percent improved fuel economy for the new vehicles relative to the old, and also to get vehicles built with more modern safety standards and technologies on the road.

Without a program to stimulate sales, Jonas predicts the annual sales rate will fall as much as 30 percent, to 11 million or 12 million, from 17 million before the health crisis. With a program, factory production is stimulated, automakers start making money again, states get sales tax and registration fees on the purchases.

Jonas expects the auto industry to be forever changed by the pandemic. There will be less commuting by employees who have learned to work from home, fewer dealers, rental companies, less ride-sharing, restructured supply chains, and perhaps a better overall car-buying experience—including more widespread home delivery and remote paperwork signings, perks once found only in the luxury sector.

[Eye of the Tiger]

Noooooooo! More cool old cars will get crushed!

[Laconian]

Oh god. No.

[CaminoRacer]

But I would totally trade my Mazda6 in for a new Miata if they gave me $4500 for the clunker...

[Laconian]

Why are we already talking about this level of stimulus for multi billion dollar companies? Isn't it their fault for not having cash on hand to weather storms? Nobody forced them into buying back shares.

[Soup DeVille]

Why are we already talking about this level of stimulus for multi billion dollar companies? Isn't it their fault for not having cash on hand to weather storms? Nobody forced them into buying back shares.

Bingo; the basic trade off in capitalism is you get the reward, you take the risk.

[Laconian]

Are you sure it's not "privatize the profits, socialize the risks"?

Won't somebody please think of the shareholders?

[Eye of the Tiger]

I'm keeping my Cherokee. Fuck your $5000.

[MrH]

Please dear god no

[giant_mtb]

"Ramping up a new clunkers program this time has the advantage of using the 2008-2009 financial crisis as a precedent. We saw that it worked."

Worked for who, exactly?  All it did was give people a down payment and change to take on a new loan or lease, and probably a longer and larger one than they had before.

CARS 2009
Eligibility criteria:

- Only the purchase or 5 year minimum lease of new vehicles qualify.

[Laconian]

Also, it screwed poor people because it made used cars very expensive.

[CaminoRacer]

Also, it screwed poor people because it made used cars very expensive.

They saw that used car prices might start to fall as we enter recession. CAN'T HAVE THAT!

[shp4man]

Five Grand? That should get the scammers and slimeballs motivated.

[SJ_GTI]

Why are we already talking about this level of stimulus for multi billion dollar companies? Isn't it their fault for not having cash on hand to weather storms? Nobody forced them into buying back shares.

I would hesitate to say it is "their fault" in this case. Having enough cash on hand to weather a 6 month shutdown of all operations and most sales isn't realistic for most companies. Its a competitive market...the carrying cost of such a reserve would make their product costs significantly higher, so any company that decides to not have such reserves would have a giant competitive advantage, thereby putting those other companies out of business anyway. The only realistic way to handle something this massive (ie: once a century pandemic) is via insurance, but I am guessing most insurance companies would go bankrupt anyway if they had to cover an event like this.

I remember in my MBA courses we actually talked about things like this, and essentially the answer is that most companies have to act as if these events aren't going to happen because there is no realistic way for insurance companies to price this type of thing in.

All that being said, I don't think this means the government needs to bail everyone out. When you invest in the market you get a risk adjusted return...if the government is always going to bail companies out then the risk adjusted premium to "the market" should be more os less equal to the interest on bonds. In other words investors should be looking at returns of 1-2%, not 4-5%. The difference between those returns will go to taxes paid to the government and/or inflation.

[Laconian]

We had to bail them out for much less in 2008; they should be keep more cash to not rely on gov't largess again. Or not, because it's apparently so easy for them to get dat $!

[SJ_GTI]

We had to bail them out for much less in 2008; they should be keep more cash to not rely on gov't largess again. Or not, because it's apparently so easy for them to get dat $!

2008 wasn't anything like what is happening now. Car companies had to downsize because supply > demand. What we are seeing now is that car companies cannot even operate because the state governments have told them and/or their supplier that they are not allowed.

It is also worth noting that GM's shareholders were not "bailed out." If you owned shares in GM you essentially lost your entire investment. When the US government managed GM through its issue it took an equity stake in the company (and eventually sold that stake when GM recovered). Outside of cars, some major banks (where the fault really lied) did in fact go bankrupt and after other banks were bailed out the government did put in rules regarding how leveraged a bank could be. For the last ~12 years we have heard from conservatives that those rules were much too harsh and that banks should be able to reduce their reserves. I am guessing we won't be hearing that for a year or two, but people have short memories.

[Soup DeVille]

Are you sure it's not "privatize the profits, socialize the risks"?

Won't somebody please think of the shareholders?

Yes, I am.

Which makes the current system, as much as people like to call it capitalism, anything but.

It is in fact closer to actual Italian style fascism (again, not to be confused with what is popularly called fascism).

[MrH]

I should buy a $500 clunker now in preparation.  $5000 off a new miata would convince me to sell the S2000 and upgrade to something newer.

Terrible, terrible program.  But as always, hate the game, not the player.

[r0tor]

I could clunk the RX8 and buy 2 to replace it

[Soup DeVille]

I could clunk the RX8 and buy 2 to replace it

Why would somebody bother selling you one for $2500 when they could get paid $5000 to scrap theirs?

[Laconian]

Clunk arbitrage across the Canadian border?

[Soup DeVille]

Clunk arbitrage across the Canadian border?

Possibly. That didn't occur to me.

[shp4man]

Contingent on lease or buy?   Fake paperwork!  C'mon guys, think creatively. 

[AutobahnSHO]

Why would somebody bother selling you one for $2500 when they could get paid $5000 to scrap theirs?

It's all about playing the market and opportunities.

Last night on Craigslist I saw a TON TON TON of cars for sale that probably are 2nd or third cars for many people, trying to sell because they're tightening up the budget.

Snatch them up now before the price soars back up. But it's all speculative- like many market moves.

[Laconian]

Don't play that game. It's such a tremendous waste of energy, natural resources, and taxpayer money.

[AutobahnSHO]

C4C is a retarded idea and all that's wrong with America.

[Morris Minor]

Also, it screwed poor people because it made used cars very expensive.

C4C is a retarded idea and all that's wrong with America.