My favorite car and why Cash for Clunkers is a great fiscal stimulus program

In 1999, I bought a 1992 Nissan Pathfinder with 103,000 miles on it for $5,500.  I had just moved back to the US (Silicon Valley) from Hong Kong and decided to start a company (the Dot Com era).  Given that I was in sunny California, I almost bought a 1997 Porsche Boxster.  However, I was a young entrepreneur with a business idea, I decided that VC’s would probably think that a convertible sportscar was an indication of how I’d spend their money.  Therefore, I used Yahoo Classifieds to find my Pathfinder, which is basically my first Internet purchase.

I’m happy and sad to say that after ten years I am retiring my Pathfinder, supporting a greener world, and taking advantage of “Cash for Clunkers.”  Before I give my thoughts on this Government Economic Stimulus program, I’ve got to say a few words about my experiences with my Pathfinder (nostalgia settling in).  In the past ten years, I’ve put on 106,000 miles…Yes, my mileage is about to hit 209,000.    When I shut the doors of my venture backed start-up in 2001, I packed everything up in my Pathfinder and headed back to the Midwest.  My car has survived a summer in Las Vegas (110 degrees) and a bunch of winters in Chicago (snow, ice, and salt).  We have traveled together to and from about 20 triathlons including Ironman 2007 in Louisville.    Both my car and I barely survived Ironman (read my first Blog about my Ironman experience), I ended up paying $900 for a new drum brake in Louisville so that my father and I could drive back to Chicago.  Besides quarterly oil changes and a new set of tires, I’ve only had a couple of maintenance issues including a new clutch and the drum brake repair for a total of about $1,500.   A year ago, someone hit my passenger door so I received a $1,200 insurance check but I opted not to repair it and kept the money which basically cancels out the costs of my repairs.

the carsad eddie

IMG_0377However, I plan to take advantage of the Cash for Clunkers program so I can receive a $4,500 cash rebate on my Pathfinder.  Based on my math, I spent $5,500 in 1999 and will receive $4,500 rebate.  When you factor in repairs and the $1,000 of depreciation, I probably spent an average of $130 per year the past 10 years, or about $11/month.  WHAT A DEAL!

So I plan on trading in my Pathfinder next week for a 2010 Toyota Prius, which seems to be every car magazine’s “Green Car of the Year.”  I’m trading in a 9 mpg SUV for a 50 mpg Hybrid so I feel pretty good about its low CO2 output.  The 2010 Toyota Prius is in super high demand; I called 8 Toyota dealerships and no one has any inventory (new 2010 model came out last month coupled with Cash for Clunkers demand) so I am paying MSRP to secure one that is estimated to arrive this weekend. 

I’m a free-market capitalist and not a fan of all the artificial spending by Big Government to “stimulate the economy.”  And since I’ll surely be paying for all increased government spending via higher income taxes in the very near future, I am happy to say that I’m taking direct advantage of the one of the programs.  The government will be giving me $4,500 to trade in my clunker for a “green” car.  I’ll be saving $3,750 (since the value of the Pathfinder is about $750) but in reality I am spending about $21,000 since the Prius’ MSRP is about $25,000.  Without this program, I would not be buying a new car so the $21,000 would be sitting in my bank collecting 1% interest.  Lots of people will be getting a piece of my spending.   Sales tax of 9.2% would be about $2k to Chicago.  The American Toyota dealer will make about $2,500 of which the sales agent will receive about $750 in commission.  The dealer will have to pay corporate taxes and the agent would pay income tax. 

Given our economy and the government’s use of fiscal stimulus, I’m in favor of the Senate approving the additional $2 billion in spending.  Here is why:

The program is working much better than expected.  The first billion was gone in about a week as consumers poured into auto dealer showrooms (250,000 consumer purchases).  It has almost become a national pastime and a topic of everyday conversation.  After a dismal year of economic news, people  are excited about “spending” money.  Everyone knows the Big 3 need major restructuring and Detroit’s and Michigan’s economies are in the pits, yet it is a fact that Americans love their cars and that cars are one of the highest consumer dollar purchases.  Well, this particular fiscal stimulus results in a high dollar consumer purchase instead of simply being a welfare transfer program.

Car companies recently reported higher than expected sales for the month of July and they are increasing production.  This could mean better employment.  Of the top 10 new car purchases, only one, the Prius, is manufactureed overseas.  The others including the Ford Focus, Toyota Corolla, Toyota Camry, Honda Civic, Dodge Caliber, and Chevy Cobalt are manufactured in the US…i.e. more jobs.  Not only are new cars being sold, it seems that used car prices are also sustantially up year over year as those that can’t afford brand new cars are buying used cars.

Besides increasing tax revenue and boosting the auto industry, other benefits of the program: 1) Americans are buying new vehicles that average 9 mpg better than their trade in clunkers thus reducing US dependence on foreign oil, 2) Besides reducing gasoline consumption, the new vehicles have better anti-pollution equipment thus lowering harmful emissions significantly so less pollution, 3) Americans are saving more, about $800 annually assuming 12,000 miles per year and a 9 mpg improvement and $2.75 per gallon.

The House approved an additional $2 billion with a vote of 316 to 109 a week ago.  Come on Senate why are you taking so long?  We have already poured $64 billion in federal loan guarantees to GM and Chrysler and the TARP has budgeted $700 billion for the financial institutions (AIG and banks).

Though a little self-serving since I’d like to turn in my Clunker, it seems so obvious that the additional $2 billion should be approved.  Come on Senators help me out and approve the funds so I can be one of the 500,000 additional consumers to spend money in the economy.

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Comments
2 Responses to “My favorite car and why Cash for Clunkers is a great fiscal stimulus program”
  1. Eileen says:

    Eddie, I find your comments very uplifting. I took just participated in the cash for clunkers last week. We traded in a 1999 Ford Econoline Van that was used for deliveries at LFF – then went to college with me and spent another 4 years at Michigan State with my broters. Getting 14 mpg (maybe), we traded it in and with other incentive discounts are saving $9000! I will be parking my F250 truck (which gets 11 mpg) and driving a new Chevy HHR which gets 24/32 mpg.

  2. Congrats to getting to 200k miles! I too had a Pathfinder which was good to me over the years. Cash for Clunkers is definitely a win-win program. Too bad I sold my Pathfinder last year. Enjoy your Prius!

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