The Government's Car Allowance Rebate System (CARS) or the"Cash for Clunkers" program is a very controversial one month long program.
The program had a price tag of 3 Billion dollars and intended to spur demand and improve economic growth.
The program gave citizens $3500 to $4500 for their old gas guzzling vehicles when they purchased a new vehicle with better gas mileage.
There is a lot of discussion on whether the program is successful or not.
A recent study by Edmund.
com, a well known Auto research organization, concluded that the program cost the government $24,000 per vehicle, not $3,500 to $4,500 per vehicle as the government is claiming, since the program resulted in only 125,000 new vehicle sales.
Edmund claimed that the program did not result in 690,000 new vehicle sales, like the government claim, since there were 565,000 cars that would have been sold without it.
Through it was an innovative program; it failed to deliver the large number of new vehicles sales; and was not able to spur any real economic activities.
The reason for such failure goes back to the days following September 11, 2001, when the Federal Reserve lowered the interest rate to its historical low, allowing car manufacturers to offer vehicles at 0%APR, flooding the market with vehicles.
For our economy to succeed we have to use the valuable resources that globalization is offering us.
A program similar to "Cash For Clunkers" could promise success; if we look beyond our borders; at countries that are; impoverished.
These countries possess a burgeoning middle class longing to buy new cars, but who cannot afford the down payment.
The importance of such economies arises from the high demand potential that exists within their borders.
In those economies, Uncle Sam could use his magic program to turn things around for both our Auto industry and economy while at the same time extend a helping hand for those less fortunate.
The government does not have to ask for a clunker, but rather for a living being with enough credit and income to buy a US made car.
The US government can offer to pay the down payment for qualified citizens in those economies, giving the auto industry the first mover advantage in a new market, while allowing the auto industry to flourish and hire new US workers in an ever expanding industry.
The program will also offer a helping hand for developing economies, since it will offer the citizens in developing countries the chance of getting an education or going to work, and at the same time help improve the US image abroad.
Such a program would cost the government little to no money, since it could be funded from the taxes that the government will collect from the increased economic activities that the program will create.
The government would tax the auto industry for the increased demand, the auto workers for the extra hours worked as well as the shipping and trucking companies for the extra vehicles they ship.
Uncle Sam will also collect all the taxes that will result from the increased spending as a result of the increased economic activity in our country.
We have to remember that when one of us buy a carton of milk, the dairy farm, the convenience stores and employees working in both facilities will acquire additional income and pay more in income tax.
All that Uncle Sam has to do is provide the initial down payment for the program which will be recovered in the months to come.
The increased production, wages and economic activity will increase the US demand for products in developing countries, enriching their people and improving their economies.
That will result in additional demand for US products in those countries; especially products that require technology or heavy capital investment such as machinery.
We also have to remember that those vehicles will, in few years, require maintenance, and orders for US made parts will go up.
There are three potential downfalls with such a program.
First, if the program is poorly timed, it becomes a burden rather than help to the economy.
Uncle Sam should start the program at the beginning of next year, when the income statements of the Auto companies are cleared from losses; this will enable Uncle Sam to collect taxes to support the program.
Second due to increased demand; vehicle prices will likely go up.
Such increases could reduce the consumer surplus we enjoyed during the recession.
Second, other countries might imitate this model in the same developing countries we are helping, thus leading to stiffer competition.
The program had a price tag of 3 Billion dollars and intended to spur demand and improve economic growth.
The program gave citizens $3500 to $4500 for their old gas guzzling vehicles when they purchased a new vehicle with better gas mileage.
There is a lot of discussion on whether the program is successful or not.
A recent study by Edmund.
com, a well known Auto research organization, concluded that the program cost the government $24,000 per vehicle, not $3,500 to $4,500 per vehicle as the government is claiming, since the program resulted in only 125,000 new vehicle sales.
Edmund claimed that the program did not result in 690,000 new vehicle sales, like the government claim, since there were 565,000 cars that would have been sold without it.
Through it was an innovative program; it failed to deliver the large number of new vehicles sales; and was not able to spur any real economic activities.
The reason for such failure goes back to the days following September 11, 2001, when the Federal Reserve lowered the interest rate to its historical low, allowing car manufacturers to offer vehicles at 0%APR, flooding the market with vehicles.
For our economy to succeed we have to use the valuable resources that globalization is offering us.
A program similar to "Cash For Clunkers" could promise success; if we look beyond our borders; at countries that are; impoverished.
These countries possess a burgeoning middle class longing to buy new cars, but who cannot afford the down payment.
The importance of such economies arises from the high demand potential that exists within their borders.
In those economies, Uncle Sam could use his magic program to turn things around for both our Auto industry and economy while at the same time extend a helping hand for those less fortunate.
The government does not have to ask for a clunker, but rather for a living being with enough credit and income to buy a US made car.
The US government can offer to pay the down payment for qualified citizens in those economies, giving the auto industry the first mover advantage in a new market, while allowing the auto industry to flourish and hire new US workers in an ever expanding industry.
The program will also offer a helping hand for developing economies, since it will offer the citizens in developing countries the chance of getting an education or going to work, and at the same time help improve the US image abroad.
Such a program would cost the government little to no money, since it could be funded from the taxes that the government will collect from the increased economic activities that the program will create.
The government would tax the auto industry for the increased demand, the auto workers for the extra hours worked as well as the shipping and trucking companies for the extra vehicles they ship.
Uncle Sam will also collect all the taxes that will result from the increased spending as a result of the increased economic activity in our country.
We have to remember that when one of us buy a carton of milk, the dairy farm, the convenience stores and employees working in both facilities will acquire additional income and pay more in income tax.
All that Uncle Sam has to do is provide the initial down payment for the program which will be recovered in the months to come.
The increased production, wages and economic activity will increase the US demand for products in developing countries, enriching their people and improving their economies.
That will result in additional demand for US products in those countries; especially products that require technology or heavy capital investment such as machinery.
We also have to remember that those vehicles will, in few years, require maintenance, and orders for US made parts will go up.
There are three potential downfalls with such a program.
First, if the program is poorly timed, it becomes a burden rather than help to the economy.
Uncle Sam should start the program at the beginning of next year, when the income statements of the Auto companies are cleared from losses; this will enable Uncle Sam to collect taxes to support the program.
Second due to increased demand; vehicle prices will likely go up.
Such increases could reduce the consumer surplus we enjoyed during the recession.
Second, other countries might imitate this model in the same developing countries we are helping, thus leading to stiffer competition.
Source...