Unintended Consequences For Clunkers

I love it when I see a story or hear an anecdote that leaves me scratching my head wondering if there really was a different expected outcome.  The story from the NY Times which has the final numbers on the “Cash For Clunkers” program elucidates a dirty little secret.

One of my investments, CarWoo, had the story about a month ago.  My buddy, and CEO, spent the weekend going around to dealers in the San Francisco area talking to dealers about CarWoo and how they might work together.  He put together a blog post with some observations from the weekend, and pointedly discussed the fact that the American dealers were empty and the foreign dealers were booming.

The fact that the top 10 cars traded in for the program were all American comes as little surprise.  American spent years gorging themselves on SUVs and other fuel inefficient cars.  Further, the quality of American product has been lagging (at least in terms of the perception of the buyer, which is all that matters) that of the Japanese manufacturers.  They are seen as bad product with poor gas mileage.  Exactly the type of car you wouldn’t be looking to buy if someone were trying to incent you to buy otherwise.

While the fact that 8 of the top 10 cars were foreign bothered me a little, what bothered me more was the provision of the program which required the dealers to kill the cars which were traded in.  Dead.  Why weren’t these cars sold to other countries that have no such problems taking them, especially when the fuel efficiency and cleanliness of their engines probably outstrips what may already be in those markets.  Killing the car and sending it to the pound is a money losing proposition, whereas we might have been able to put these same cars on cargo ships and put them into foreign markets and recovered some money.  I may be completely off here, but my gut is telling me that the legislators did not look for alternatives to the requirement enacted.

The market speaks, and it speaks with dollars and feet.  The market has spoken.  American cars are in quite a bit more trouble than I think anyone imagined.