Thursday, August 5, 2010

Government just can't fix stuff

The cash for clunker program was a huge relief to the sagging automobile sector during the economic crises.  The program helped drive sales of cars off dealer lots and generate more demand for manufacturing.  The only problem is the government inadvertently created a mini-mortgage crises with this cash for clunker program.

What the government failed to understand was that most of these individuals who took advantage of the program drove those old, fuel inefficient cars because they were not in a position to purchase a new vehicle to begin with.  Long term leases exacerbated the situation as they gave incentives for individuals who shouldn't purchase the vehicle all the monetary opportunities to do so.

Long term leases are just bad ideas, and although beneficial for the dealer and manufacturer, offers absolutely no value for the consumer.  The reason why is through leasing, you still pay for the depreciation of the vehicle.  Why would anyone pay for the deprecation of the vehicle for over 5-years then return the car is beyond me.  If you finance the vehicle, you would at least have the vehicle paid off.  If the individual can't afford or get financing, they probably should take the bus.  

End of the day, 1-year later, we have a surplus of used vehicles from this program that is now piling up on dealer lots as well as "lease trading" sites.


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