Tag: japanese earthquake

As Used-Car Prices Soar, ‘Clunkers’ Are Missed

Cato scholars have been appropriately scathing about the federal government’s 2009 “cash for clunkers” program, which paid several billion taxpayer dollars to have older cars scrapped and their engines destroyed, with owners getting vouchers toward new vehicles. When Chris Edwards nominated cash-for-clunkers as the “dumbest government program ever,” he listed among its effects: “Low-income families, who tend to buy used cars, were harmed because the clunkers program will push up used car prices.”

Guess what’s the newest trouble to hit the car business? As news outlets around the country are reporting, the price of used cars has lately soared to a modern-day record, with some cars commanding more used than they sold for when new. News accounts commonly finger the Japanese earthquake and high gas prices as reasons, but there are some problems fitting either reason to the case. While the earthquake affected the supply of new cars, it’s the previously driven kind that has scored the more impressive price jump. And while the rise in gas prices would explain a relative shift in buyer demand from SUVs and trucks toward smaller vehicles – which has indeed happened – the strength of the used-vehicle market lately has been such that even the thirstier vehicles have advanced in price, $4 gas or no.

No doubt there are multiple reasons for the price spike, including the severe general slump in new-auto sales in recent years, which has reduced the volume of newer cars coming onto the resale market. But – as Washington scrambles to take undeserved credit for whatever passes for normalization in the auto business these days – it’s worth remembering that an artificial scarcity of used cars isn’t just bad for the poor as a group: it’s bad in particular for the upwardly mobile poor, since in most of the country landing a job means needing to line up transportation to get to that job. When it suddenly costs $6,000 instead of $3,000 to get wheels, the move from unemployment to a paying job faces a new and discouraging barrier.

There’s a further irony too. Just as the federal housing stimulus lured many buyers into unwise house purchases at a time when home prices still had a good distance to fall – leaving them worse off in retrospect – so many owners who jumped for the cash-for-clunkers program would have been better off holding on to their cars a while longer. At least that’s what one might conclude from what Frederick, Maryland used-car dealer Robert Cox told his local paper, the News-Post:

People who got $3,500 for the cars they turned in would probably get $5,000 to $7,000 for the same trade today, Cox said.

Nice going, Washington.