Americans love new cars, but the federal government doesn't seem to grasp how much. How else can we explain the mad, mad ride of CARS, the Car Allowance Rebate System, commonly called Cash for Clunkers?
The program ended Monday night because it has once again run out of money. It ran out the first time just four days after its July 24 debut, prompting Congress to authorize an extra $2 billion on top of the measly $1 billion it started with. And so we now know how long the car-loving folk of our nation will leave that kind of cash on the table when it comes to new wheels: not very dang long.
That Washington failed to grasp this is a sign of how disconnected the ruling class has become from everyday life, much of which happens in cars. Lawmakers did the right thing in authorizing -- and then re-authorizing -- Cash for Clunkers. But they should have been more aware of the unnaturally depressed state of auto sales -- and the relatively small amount it would take to revive them.
Cash for Clunkers has been a tremendous boost to the two most important components of the economy: the beleaguered manufacturing sector and the formerly sidelined consumer. It may be remembered as the stimulus initiative that finally snapped the country out of its financial coma and set us on the road to recovery. Elaborate financial re-engineering didn't do this, nor ingenious investment in entrepreneurship. It was the recognition that the make-stuff-sell-stuff economy can swiftly restore national confidence.
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So you could argue that another $1 billion or so wouldn't hurt, given that the program was originally budgeted for $4 billion before it passed Congress. When you're on a roll, you're on a roll, and it would take a while for Cash for Clunkers to even approach the sums that have been shoveled at the banking business.
Getting money to dealers has been tricky
The big problem appears to have been the Department of Transportation's inability to send money back to dealers as fast as consumers were gobbling up the options. Here's the president during a radio interview, summarizing the program's wild ride:"It has been successful beyond anybody's imagination," Obama said. "And we're now slightly victims of success because the thing happened so quick, there was so much more demand than anybody expected that dealers were overwhelmed with applications."
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Dealers hit brakes on clunker sales?The government has fielded complaints from consumers who say dealers won't hand over keys to new vehicles until they get their $4,500 reimbursements, CNBC's Phil LeBeau reports.
The real issue was that Washington made the reimbursement process inordinately complex, even forcing barely-out-of-bankruptcy General Motors (MTLQQ, news, msgs) to pay dealers who were waiting on the government to cough up the cash. It's the bureaucracy that was overwhelmed, not the dealers.
But what's worse is what Obama said about demand. Washington misunderstood how low it had fallen and how rapidly it could return.
Continued: The headlight at the end of the tunnel
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