Beating Debt News Archives

House approves $2 billion “clunker” extension July 31, 2009

By Reuters

An initial $1 billion in funding approved this summer to boost stagnant industry sales has already been exhausted, officials said.

Consumers stormed dealers over the past month to take advantage of federally backed rebates of up to $4,500 on trade ins of gas guzzlers for more fuel efficient vehicles.

This blog is not to criticize what the House approved.  I am writing this to point out how much personal debt has been accumulated due to this government sponsored marketing effort.  If the average car buyer received $3,000 for their trade-in, the $1 billion is exhausted, and the average car buyer bought a minimal priced car at $15,000, that would mean that $4 billion in new consumer debt was just created.

The picture below should explain better.

This $4 billion in new personal debt raises some issues and concerns.

Some say that the program is great for the environment and for you to save money.  But others say you can get a more efficient vehicle and spend less money by buying used.  Consider that to make another “green” vehicle requires vast amounts of energy that creates a “carbon debt” that would take the new “green” vehicle at least 45,000 miles to make up according to Wired magazine.  Also consider that Kiplinger’s Personal Finance finds that buying a new car is the number one money waster in a person’s budget.  So from reliable sources you can be assured that if you found a late model, efficient used car you would save more money and the environment instead of going for the cash for clunkers program.

Remember this program’s intent is not to ensure more efficient vehicles on the road, because if that were true used car dealerships would be included in this program.  This program was a response to the Realtor Association getting their $8,000 marketing effort from the government to spur home mortgages.  Now the new car dealerships wanted a piece of the action and was able to convince Congress to offer a similar marketing effort to increase car loans.  More on these ideas can be read here.

Also, realize the $1 billion that created this $4 billion in personal debt is a loan as well.  Currently the government is out of money, so this $1 billion is just a loan from someone passed on to new car buyers to supplement their car loans that will need to be paid off sometime in the future.  Add the $1 billion to the total $4 billion in personal debt and America just raised its debt load by $5 billion.

Finally, don’t we have enough stuff?

So, here at BDO, we have our work cut out for us to convince people to stay away from personal debt.  I just hope that the 333,333 new cars were bought were chosen by buyers who NEEDED a new car and did not buy them just because a salesperson told them about a “new lower price”.

For more on this article, click here.

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