Tuesday, August 19, 2008

Old Cars for New? Or for New Debt?

Recently, I read a remarkably stupid article in the New York Times by Alan S. Blinder. He proposes that the Federal government pay people to give up their old cars. This kind of program evidently exists in several states, and the purpose is to get the cars that pollute the most off the highways. It’s a noble enough purpose. But I dispute the consequences.

Blinder suggests that owners of old clunkers, as he calls them, should be paid 20% over Kelley Blue Book value, with a cutoff of $3,500 to $5,000. A nice enough deal if you are 88 years old and have given up driving. You’d get some cash. But what about the rest of us?

Blinder thinks that people who own really old cars and trucks (older than 10 years) have income as high as $60,000, so that’s the upper income cutoff he suggests. He’s an economist. In theory he knows who owns old cars. But does he? This is one of those times when personal experience seems more accurate. Maybe it isn’t. You be the judge.

I used to own old cars. In fact, until a couple of years ago, I never owned a car that came out in the same decade in which I was driving it. The newest old car I’d buy would be six years old. I ran my old clunkers until they died, usually in their early teens, long before they could become valuable collectible classics. I did not do this because I like driving old cars. I did this because I could not afford a newer car. In fact, I drove such old cars that my mechanic would eventually sit me down and in his fatherly way advise me that it was time to get something newer because I was putting too much money into repairs. Still, until then, it was cheaper to do the occasional $300 repair than to make a car payment every month. Insurance was cheaper. Even sales tax for titling the car initially was cheaper. Fuel efficiency on most of those cars wasn’t outstanding, but wasn’t bad, either. I’d get around 18 to 22 miles per gallon. And all of those cars were big enough so that when accidents happened, no one in the car was hurt.

Is a person who is driving a 10-year-old, paid-for car earning $60,000 a year? I don’t think so. I wasn’t. The person driving a car that old is earning $30,000 a year or much less. Like $10,000 a year. This person depends on the low book value of the car to keep the cost of running it low. They drop the collision insurance to reduce insurance costs. In states where personal property taxes are levied on cars each year, the advanced age of the car also reduces the tax from hundreds of dollars per year to a pittance. And lots of people with old cars and trucks do all the maintenance and repairs themselves. It’s a typical sight in West Virginia to see a guy fixing his car by the side of the road. Keeping the car going with baling wire and chewing gum, if necessary. I’ve known plenty of people who tied their mufflers on with a coat hanger.

But let’s assume I go for this great new government program. I get the maximum $5,000 cash for my car. Now I have no car. Blinder would have us believe that I will then be able to purchase another car, specifically, a new car, thus boosting the ailing auto industry. That’s a laugh. A government payment of $5,000 will not buy a new car. It won’t buy a used car outright, either, unless it’s another old clunker. So I’m stuck replacing my old car with another old car, or with a car loan for a newer car. Which means I have to go into debt.

If employment in this country were secure anymore, which it isn’t, I’d buy a new car on time and make monthly payments for four years. Or even a used car on the same terms. But what if I lose my job, a common occurrence these days? If I still had my old clunker, it wouldn’t cost me anything not to commute in it anymore. But with a car loan outstanding on a newer car, I’d risk having my car repossessed if I didn’t have enough money to make the payment. Unemployment insurance runs less than a year, but car loans run longer. Sooner or later, I’d either be homeless in that car, or I’d try to keep the roof over my head and have to let the car go. Thus making it very difficult to find or keep a new job.

Blinder is happy because an old car has been gotten off the roads. He’s also happy at the idea that people will run out and buy new cars and keep Detroit afloat. But he pays no attention to the dire consequences of piling up more consumer debt. A car loan is a secured loan, which is good for the seller. But a repossession isn’t good for my credit record. It means that the next time I need to get a loan, I’ll be offered higher rates. Blinder probably thinks this is a good thing, because it boosts the bottom line for credit companies. Apparently, the US economy can no longer run without the help of nightmarish levels of consumer debt. But wait, there’s more. The new car is taxed and titled and insured all at a much higher rate than the old clunker was. Thus adding to the coffers of state governments and insurance companies. This makes everybody happy except the car owner, who used to own a car that ran, and now merely owns an interest in a car.

A government program to help remove old clunkers from the road isn’t likely to improve the lot of the people driving them. It’s adding insult to injury to tell people that their cars are too old. They already know it. Thanks, Mr. Blinder. With friends like you, more poor Americans can be poorer still.

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