Bottom line: the C4C program jacked $3 billion from about 100 million tax payers, redistributed it to 750,000 clinker owners (some tax payers, some not), and leveraged the rebates dollar-for-dollar into $3 billion in new consumer debt.
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Talk with friends over the weekend turned to the C4C program … specifically, how many rebate-takers were driving clunkers because they couldn’t afford a fancy new ride. Consider the implications if that’s true.
Running some back-of-the-envelope numbers, it’s likely that C4C buyers took on debt (auto loans) equal or greater than the tax payer provided rebates.
Here’s the logic, using rough, top-of-mind assumptions:
Assume that a clunker qualifies for a $4,000 rebate, that the clinker owner applies the rebate to a new $24,000 car, and that $20,000 balance is rolled into a shiny new auto loan. (Note: no money down – just like the home deals that got us into this mess).
Assume the $20,000 is financed at 6% over a 4 year term. The monthly payment is just a bit under $500.
So, the clunker-trader walked into the showroom with a clunker and no auto loan payments.
He rides out with a cool new ride and a new $500 monthly payment. Hmmm.
Assume that 1 in 4 clunker-traders are rich folks who pay cash, and that the other 3 take out auto loans.
Project the numbers to the whole program (calcs below) … and PRESTO – the C4C program jacked $3 billion from about 100 million tax payers, redistributed it to 750,000 clinker owners (some tax payers, some not), and leveraged the rebates dollar-for-dollar into $3 billion in new consumer debt.
Frankly, I’m not sure if that’s good or bad. Maybe the stimulative effects are worth it.
But, it begs the question: isn’t this how we got into this mess in the first place?
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copyright K.E. Homa 2009, All Rights Reserved
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The Homa Files 
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