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Source link: http://archive.mises.org/16868/gee-why-the-sudden-shortage-of-used-cars/

Gee, why the sudden shortage of used cars?

May 9, 2011 by

The WSJ reports that used car prices are soaring. “The price of used cars is just crazy right now,” said Adam Lee, chairman of Maine dealer Lee Auto Malls. His dealership is paying hefty sums for cars it normally might not purchase to have a full inventory. “It can be a piece of junk—cars we used to pay $2,000 or $2,500 for, we are now paying $5,200 to $5,500,” Mr. Lee said.

The WSJ story meanders around for a cause but never mentions Cash for Clunkers, the most cockamamie scheme for deliberate destruction in our time. Some 600,000 cars were destroyed after being bought by the government, for a total per taxpayer expenditure of $24,000 each. Then we wonder why used car prices soar!

{ 35 comments }

Bruce Koerber May 9, 2011 at 5:35 pm

Used Car Prices Prove The Quackery Of Statism.

Question: Who needs used cars anyways? The answer is not difficult – the poor, families with adolescents, young adults with a debt load, older folks with a fixed income, etc.

The ego-driven interventionists are economic numbskulls with no moral authority to interfere with the economy, nevertheless yielding their rotten fruits of immorality and injustice.

Educate yourself about free market economics or be prodded down the road to serfdom!

Gene Berman May 9, 2011 at 5:51 pm

Mr. Tucker:

I just can’t make sense out of the $24K “per” figure–no matter whether I consider it “per taxpayer” as it seems to be written (which would be an amount of $24K X 136 million taxpayers divided by the 600,000 cars = $544,000 per car unit) OR “per car,” (which would be $24K X 600K divided by 136 million taxpayers = $105 per taxpayer), the latter being more of a minor-level disaster than the piece seemed to imply.

But, since there are at least twice as many vehicles as taxpayers (roughly speaking), even the 2-3% reduction in the used fleet is going to have an impact on their prices, though the (approximate) doubling sounds doubtful. My best guess is that any price rise is far more attributable to uncertainty and “hard times”–leading owners to avoid parting with vehicles as easily as they might’ve previously.

Jeffrey Tucker May 9, 2011 at 6:04 pm

This comes from a CNN story that posits that the cars would have sold anyway without the government purchase http://money.cnn.com/2009/10/28/autos/clunkers_analysis/index.htm, so they focus the money only on the units that would not have sold.

Boris Lvin May 9, 2011 at 10:37 pm

Actually, CNN just repackaged the story from http://www.edmunds.com/about/press/cash-for-clunkers-results-finally-in-taxpayers-paid-24000-per-vehicle-sold-reports-edmundscom.html

It is far from clear how their “team of PhDs and statisticians” calculated the notional car sales in the column “If no Cash for Clunkers”, so I would be rather cautious with the conclusions. In any case, I am not sure it would be correct to compare the budget outlays for the program with the alleged number of extra new cars sold. Regardless of this number (even if it were negative) the program was just an exotic form of budget subsidy designed to dole out about several thousands dollars to each eligible (i.e. trading in an old car) household to be spent for any imaginable purpose.

J. Murray May 9, 2011 at 6:07 pm

The program was $3 billion. Of the 690,000 cars, 565,000 of them would have been purchased sometime in 2009 without the program at all, so this means that $3 billion spurred the purchase of 125,000 cars. $3 billion/125,000=$24,000 per car sold that otherwise would have not been sold.

Briggs May 9, 2011 at 6:51 pm

Thanks J. Murray, I wondered about the calculation.

Walt D. May 9, 2011 at 7:13 pm

Jeffrey – are you related?
http://www.google.com/search?q=car+Tucker&um=1&ie=UTF-8&tbm=isch&source=og&sa=N&hl=en&tab=wi&biw=1920&bih=922
If not, there a great story about government corruption around this car.

Jeffrey Tucker May 9, 2011 at 7:44 pm

If related, I wouldn’t know the precise way.

There is a good story here. I think Roger Garrison wrote about this some years ago.

Will May 9, 2011 at 11:24 pm

Since prices of used cars are going up, does that mean people will be more inclined to purchase newer cars? Or would new car prices adjust upwards? I don’t think prices will adjust upwards due to high used car prices. The smaller the price difference between new and used cars, the more the consumer would justify paying a few bucks more for a new vehicle…

nate-m May 10, 2011 at 12:40 am

It just means that less people can afford a car.
And people that can afford a car are likely to get crappier cars.

People don’t all of a sudden come with a 15000 dollars to pay for a new car when all the 2500 dollar cars are out of the market. They are not the government.

Sione May 10, 2011 at 12:58 am

Something similar is occurring within the New Zealand car market. In this case the NZ government suddenly imposed new rules which made it a lot more difficult for people to purchase second hand cars and import them from Japan. Since 50% of new vehicle registrations in NZ are UJI (used Japanese imports), this had a significant effect.

Recently it has been noted that used car prices are rising and simultaneoulsy the number of cars in dubious condition on the road is increasing. So much for the claims of improving safety and pollution issues that the govt claimed at the time it imposed the new restrictions. Meanwhile people who could have afforded a NZ$12,000 UJI are not going to the new car importer to stump up the cash for a NZ$25,000 new car. What is also occurring is that more people are driving without up-to-date registration and WOF. Some can’t afford the reg/WOF and some are rebelling to show their contempt- one of my wag friends asked me, “so who is going to stop a car load of us fellas and risk getting cooked & eaten?”

Times they are a-changing.

Anon. May 10, 2011 at 8:21 am
C. Rakish Spagaletto May 10, 2011 at 8:58 am

From Wikipedia: To ensure that vehicles traded-in under “Cash For Clunkers” will not be resold by dealers, the program outlines a procedure for destructively disabling the engine: The motor oil is drained and replaced with a sodium silicate solution, then the engine is started and run until the solution, becoming glass-like when heated, causes engine internals to abrade and ultimately seize.
http://en.wikipedia.org/wiki/Car_Allowance_Rebate_System#Engine_disablement_and_scrappage_criteria

grp00 May 10, 2011 at 10:55 am

I’m one of those who took advantage of the ‘Cash for clunkers’ program. I traded in a car that I’d been driving for 25 years and was in really good shape and I could have driven it for another 25 years! However, it was an Mazda RX-7 that got 15mpg and had really poor emissions because of the rotary engine. It was purchase in a different era where gas was less than $0.50 per gallon and emissions weren’t a wide concern. If not for that Federal program I’d still be driving it. However, getting $4,500 off a new car purchase was too good a deal let pass. It’s somewhat a shame that a beautiful car like my RX-7 had too be junked but I now drive a 2010 Prius that I’m averaging 58mpg and with near zero emissions. It’s not as much fun as the RX-7 but with $4.00 per gallon gas and cleaner emissions I’m breathing easier today. Just my $0.02 opinion!

nate-m May 10, 2011 at 12:28 pm

Would you be better of with a 4,500 discount on a new Prius
or
would you have of been better of just being handed the 24,000 dollars it cost the US Tax payer to get you your 4500 discount and loss of your Rx7 to get the Prius?

Do you think that your better off being in debt on a new car….
Versus:
Would of it been better if the 4-5 individual families that lost a significant amount of their yearly income in order for you to get your discount was allowed to keep it and spend it on new cars themselves?

Shay May 10, 2011 at 12:33 pm

Clearly the discount was better, because it leads to less guilt. Being handed $24K would make it feel much more like ill-gotten gains, like accepting loot from a thief. Still, I get a sick feeling every time I read about this story, thinking of the needless destruction of hundreds of thousands of perfectly usable machines — and I didn’t even participate in the program.

grp00 May 10, 2011 at 1:27 pm

Again, one of the primary purposes of the Federal program was to get old, dirty cars that got poor mileage off the roads, was well as to boost new car sales. I think that $24K cost per vehicle is HIGHLY dubious! The number of 565,000 that would have sold anyway is highly speculative, especially with the collapsing economy. This number varies considerably depending on who you talk to. The program drove hundreds of thousands into showrooms that otherwise would not have happened and it gave a huge boost to the auto industry when it needed it the most and we replaced hundreds of thousand of dirty, poor mileage cars with safer, clean efficient ones. Sounds like a win-win to me! I was one of those who purchased who otherwise would not have purchased. I think that getting hundreds of thousands of dirty, old, poor mileage cars off the road is something to celebrate and feel good about not get sick over. Just because something is still perfectly usable doesn’t mean it should be used. We’re better off without these cars on the road.

Do you feel like a thief when you deduct your mortgage interest from your Federal taxes? Or when you get to deduct any dependents? Or take advantage of any other numerous credits and deductions? How about those ’4-5 families’ you’re stealing from to pay for your house or children, etc.?

BTW, I paid cash for the Prius and didn’t go into debt. Also your referall to ’4-5 familes’ that lost a significant amount of income is total BS.

Anthony May 10, 2011 at 2:28 pm

grp00,

How much gas did it take to make a new car from scratch for each clunker that was destroyed? Are you sure that after factoring in the emissions caused by mining the metal, processing it, producing the electricity needed, building the factory, assembling the car, shipping all the components (and the car itself)… after all that are you really sure that the program was good for the environment?

And if stimulating the automotive industry was really the goal then why not simply pay people to buy new cars? Destroying usable cars provides no benefit to society.

RFN May 10, 2011 at 3:45 pm

Oh, you’re a thief and an idiot, too. Congratulations. I realize you’re under the assumption that a subsidy is the same thing as a tax credit/deduction, but it’s not. My getting to keep my own cash is different than me giving you money to buy a new car.

grp00 May 10, 2011 at 6:06 pm

Thief? I suppose you’ll also argue that a IRS ‘fine’ isn’t a ‘tax’ as well? Well, I got some of my own cash return via that ‘subsidy’ is no different then getting to ‘keep your own money’ via mortgage deductions, claiming dependents or any other tax credit.

Joshua May 10, 2011 at 4:04 pm

You bought a car that impacts the environment more than a Hummer, congrats:
http://www.thetorquereport.com/2007/03/toyotas_prius_is_less_efficien.html

Joshua May 10, 2011 at 4:12 pm

I meant to say “may impact the…”, because I don’t know if the story is exactly true, but it just goes to show that there are many layers to the market. It’s so difficult for the pols to play god, isn’t it? :)

grp00 May 10, 2011 at 6:23 pm

Congrats! You’ll believe anything that’s on the Internet, no matter how nonsensical! This bogus claim about the Hummer vs. Prius has been totally debunked, but that doesn’t seem to stop you guys from continuing with the BS!

http://www.slate.com/id/2186786/

Joshua May 11, 2011 at 8:33 am

You didn’t read my comment, did you? I said I wasn’t sure it was true.

AcuraT May 10, 2011 at 12:01 pm

Thanks for sharing your story grp00. What you did was the point of the “cash for clunkers” program. It was to get those horrible gas mileage cars off the road and replace them with more fuel efficent options. In that respect, the program was a success. Unilke what Mr. Jeffrey Tucker would like us mindless souls to believe, the program was to increase fuel efficiency of cars on the road, to get manufacturers selling cars again, and to boost the economy. While it is debateable on how much it helped the economy, the fact that fuel consumption fell this year from last year in the US while the number of cars has grown supports the fact (although there are other factors involved) that in a small part, the “Cash for Clunkers” program contributed to the reduction of fuel consumption in the USA in 2011.

We can complain all we want about the lack of used cars, but it is not because of the “Cash for Clunkers” took huge SUVs, ancient rotary engine vehciles,and other models over 10 years old off the road last year. It is because people have been buying a lot of used cars for the last two years, and not so many new cars. That is the truth, not this story.

nate-m May 10, 2011 at 12:23 pm

That is the truth, not this story.

Your the mindless one.

Your logic is:
a) people are buying used cars and not new ones
b) the government pays off people to get rid of used cars
c) the amount of used cars available on the market place drops dramatically and prices rise.

So A is the sole reason for C and B has nothing to do with it?

It was to get those horrible gas mileage cars off the road and replace them with more fuel efficent options.

Bullshit.

A $25,000 hybrid car is not a replacement for a $2,500 used car.

Sione May 10, 2011 at 1:21 pm

A shame you destroyed a classic like a RX7. There are few enough of that series remaining as it is.

More of a shame that you accepted stolen money. You’ve contributed to the improverishment of productive people and made yourself a rortist. Piss on you.

By the way, just in case any moron thinks he is being “environmentally aware” by accepting a “cash for clunkers” bribe- consider the environmental “cost” and energy use of manufacturing a brand new car, especially one with lots of batteries in it. The new car is unlikely to last as long as the old one could have either. So consider the impact on the “environment” of the “recycling” of firstly, a perfectly good car and secondly, of a throw away car which is going to be around for a much shorter time. You’re not being “environmental” with this behaviour. You’re being a mug. Piss on you.

Sione

grp00 May 10, 2011 at 6:16 pm

Stolen money? Taxes are stealing? If you believe that then piss on YOU! That RX-7 was mine to do with as I wish. It was strictly a BUSINESS decision. Aren’t you guys in favor of running everything like a business? The trade in value was only about $1,200 and nobody was willing to give me anywhere near $4,500 for it. That RX-7 was hardly a ‘perfectly good car’, it got TERRIBLE gas mileage and had TERRIBLE emissions. It also lacked nearly all of the current safety features in the Prius, outside of the standard seat-belts. It had NO ant-lock brakes, no driver, passenger, or side air bags, no stability control, no traction control, no uni-body construction designed to protect the occupants among other modern safety features. So, NO it was NOT a ‘Perfectly’ good car anymore! It was long past its time!

Gerald May 10, 2011 at 7:08 pm

So, where did the extra $3,300 originate? You’ve now taken $3,300 directly out of the pockets of taxpayers. You received $3,300 in untaxed income.

Sione May 11, 2011 at 9:36 pm

grp00

Taxes are stealing in the same sense that what a common street-mugger does is theft. Knowingly obtaining the proceeds of a theft is the crime of “receiving”. I understand that a person who enagages in this practice in the US is known as a “fence”. You have allowed yourself to engage in this type of immorality. In your haste to take a self-centred and short-sighted advantage for yourself you failed to notice that you were benefitting from a crime of theft practiced upon on your fellows- that is, on other North Americans. The degeneracy and the shame falls on you for allowing yourself to be tainted by doing it.

“That RX-7 was mine to do with as I wish.”
Sure it was, but not for the purpose of negating other people’s property rights, which by receiving stolen property is what you were enaged in doing.

“It was strictly a BUSINESS decision.”
You sound like a mafia criminal- “it’s business, nothing personal”. Such rationalisations do not justify or validate a criminal act, let alone an immoral one.

The “business” you involved yourself in was the partaking in an immoral rort. You did it for reasons of self-centred greed and you didn’t give a toss about what the costs would be or who would be forced to bear them- just so long as you thought you’d get advantage to accrue to yourself.

“Aren’t you guys in favor of running everything like a business?”
To whose business you refer? Surely not you own? Anyway, your question demonstrates a profound ignorance of the Austrian School of Economics, the Von Mises Institute, Libertarianism and, indeed, Capitalism itself. You do need to rectify that.

What is sought is that individuals and businesses run their affairs justly and morally (non-initiation of force, fraud, coercion etc) according to logical economic law. To understand that statement you are going to have to so some reading and research of Austrian Economics, Libertarianism and Capitalism. One of the great things about this site is that many of the important works you should be checking are available free of charge for you to read and think about. Avail yourself of the opportunity. Read Von Mises et al.

You write, “That RX-7 was hardly a ‘perfectly good car’” Yet previously you wrote, “I traded in a car that I’d been driving for 25 years and was in really good shape and I could have driven it for another 25 years!” In other words it was a perfectly good car. What you are up to here is arguing by telling fibs.

As for the rest, mere empty rationalisations in shallow attempt to justify what you did. That you like some of the neat shiny features of the new car better than those of the old car does not justify you taking part in a fencing rort, just as surely as the preference of rapist for virginal high school debutants rather than the crack addict denizens of his slum does not justify his acts of rape.

“no uni-body construction designed to protect the occupants”
The Rx7 was a unibody (properly referred to as a monocoque). It was designed with deformable “crush” structures to reduce peak acceleration and jerk experienced by occupants should a collision occur. If you are going to discuss motor vehicles (let alone make decisions regarding them) it would pay to actually know something about them in the first instance. As with economics etc., you clearly do not know aywhere near enough. The strongest recomendation to you is to make a start on some of the necessary backdround reading. Start with “Economics in One Lesson” by Henry Hazlitt.

Sione

RFN May 10, 2011 at 3:42 pm

You’re lying through your teeth. It’s like some of you are immune to the law of supply and demand. And it failed to boost the economy. Have you seen what happened to car sales since? And speak for yourself regarding “mindless souls”.

I don't need to be lead May 14, 2011 at 4:01 am

No, it isn’t at all debatable how much it “helped” the economy.

Destruction of wealth does not bring prosperity. I suggest you read some Hazlitt.

sth_txs May 10, 2011 at 3:28 pm

An 2006 Altima gained an extra $1k of trade in value when checked earlier this year. And that is with more miles.

Joel May 10, 2011 at 5:34 pm

I’m not sure where you’re going with this, but I immediately thought of Hayek’s line in The Fight Of The Century: “One data point and you’re jumping for joy, the last time I checked ['cash-for-clunkers' destroys]“

Phil May 15, 2011 at 5:16 pm

I’m sure you’re absolutely correct. It was the 690,000 cars worth $4,500 or less destroyed under C4C that caused this increase in prices not the 12,000,000 new cars that were not produced from 2008-2010 due to the recession.

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