Friday, July 24, 2009

Profit Opportunities from "Cash for Clunkers?"

Tucked inside an NPR report on the "Cash for Clunkers" program is this gem:
Emich was surprised to learn that most of the customers were middle-class folks with good credit ratings — usually thrifty people who kept their cars for a long time.

I was expecting low-income, poor credit," says Emich. "It has been the complete opposite." He says a few of the customers paid cash for their new cars.

I wonder if our minivan qualifies? Other identified impacts are:
  1. An increase in the demand for labor at wrecking yards - I am not a market participant.
  2. An increase in the supply of spare parts - the expected operating costs for my old minivan just fell.
  3. A decrease in the demand for gasoline from fewer low MPG cars - also good for my minivan.
  4. Oh yeah, an increase in the demand for new cars - an indirect auto industry bailout.
Unlike the more direct GM and Chrysler bailouts, consumers need not support the "US" auto industry with their new purchases. Will demand increase more for these "US made" cars or for "imports?" Consumers turning in Chevys to buy Toyotas would indicate that the US auto industry is continuing to lose its historic comparative advantage. Did the German version of this experiment disproportionately affect German auto makers?


  1. Not to be missed is the fact that dealers can then resell exchanged clunkers through an auction process. The end result being that the < 18mpg vehicle goes back on the road, with more cash in the dealers' pockets.

  2. My wife had to take our would-be clunker of a minivan to the dealer yesterday for repairs (again). They provided her with a ride home during which discussion veered toward the Cash for Clunkers program and how they wish they could salvage these clunkers but could not. Evidently, participating dealers must scrap the vehicles, even roadworthy ones.

  3. I rescind my previous comment. Thanks for the clarification, Michael.