I had posited in the past that, apart from the odd design and old vehicle destruction, that yes, it was a good thing in terms of generating additional sales. I argued that it didn’t go on long enough. Germany has had one in force for months, and it seems to have done a great deal of good, though there was no requirement for destruction of the turned in car, it could be scrapped, or broken down for parts, or …
Ok. According to the last linked article above
Of course, there will be a payback time in terms of the demand that was accelerated in the market which no longer exists, so this will likely oscillate around an equilibrium value for a while.
But was this a bad thing to do?
I read two articles this morning that suggest not only was it a bad thing, but it cost us more to do it. First:
I believe this is called the fallacy of the broken window.
I hadn’t taken advantage of the C4C with a car that would have lasted much longer … entropy was getting the best of that machine. All manner of things were going wrong with it. Gas mileage was ok, but everything else was falling apart.
The second article that got me thinking was this.
In it the author takes a look at the history of the Great Depression, and talks about it in terms of our own Great Recession.
Ok. So what we are in now, a credit bust, needs a period of time for people to work out the real value of assets. I’ve heard it mentioned that the only thing you can do in a credit bust is hunker down and endure, and gradually the economy will right itself. We are seeing that in the housing market here in Michigan, where, houses are starting to sell. At prices far below what they did 3 years ago. Never mind that. 10 years ago.
The market will determine the pricing for the assets. If they are priced too high, the assets won’t be sold. If they are priced at their correct current value, the assets will sell.
Propping up pricing is bad. It won’t help assets sell. This is true in any market … housing, cars, labor, …
Uh oh… isn’t number 4 what C4C was effectively all about? I argued that C4C showed that auto prices were too high, and needed to adjust. Removing the prop here, and in Germany, has (massively) reduced the number of new car buyers. Maybe C4C wasn’t as good a stimulus as I had thought.
For us it looked like a good deal, but at the end of the day, even with the good deal in place, I felt the car we purchased cost too much, but we didn’t have much choice in the matter, as I knew the program, being poorly designed, would run out of money quickly, so we had to act on a mediocre deal rather than getting no deal at all.