Cash For Clunkers Redux

by Mike_Hanks Feb 2, 2010 6:30AM PST

"Higher credit risk buyers who used the government's cash-for-clunkers program last year to buy a new car had higher repossession and late payment rates than those who didn't use the program, a research firm finds."

"A mid-January analysis of those who purchased
a new vehicle under the cash-for-clunkers program
found the most dramatic differences among those in the lowest credit category:
Among subprime credit borrowers, those who used the clunkers program had a 4.8% repo rate, more than double the 2.2% who bought similar vehicles but didn't use the government incentives."

"Faced with a new monthly payment of $250 to $350 per month, many of the (clunkers program) users admit they didn't think past the new car smell," CNW says in its January newsletter. "Most, however, anticipated the economy improving substantially between last July and today and felt that improvement would give them the financial boost necessary to at least offset some of the additional monthly payment."

http://content.usatoday.com/communities/driveon/post/2010/01/many-cash-for-clunker-buyers-have-higher-repo-late-payment-rates/1

This program did nothing but give $4500 to people who were going to buy a car anyway and enticed people who shouldn't have purchased a car.
A typical government "sucess"

Discussion is locked

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Oops!

by EdHannigan Feb 2, 2010 6:32AM PST

-chuckle-

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It's not funny.

by Mike_Hanks Feb 2, 2010 6:46AM PST

It's my tax dollars.

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Thanks, pal!

by EdHannigan Feb 2, 2010 6:52AM PST

I appreciate it.

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the new car smell,

by JP Bill Feb 2, 2010 6:58AM PST

you can buy those ornaments that hang off the rear view mirror, or get the spray can.

Some complain about aboot the payments and others complain aboot the program, as they collect the $$$$$$$

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I'm pleasantly surprised

by James Denison Feb 2, 2010 7:40AM PST

The figures are better than I'd expected. It means at least 95% of all participants in the program to date are holding onto the cars and making the payments.

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(NT) Felt the same. The difference is relatively insignificant

by Steven Haninger Feb 2, 2010 8:43AM PST

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Twice the rate of repos...

by EdHannigan Feb 2, 2010 9:00AM PST

is insignificant? I don't think so.

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Can't look at it that way

by Steven Haninger Feb 2, 2010 6:33PM PST

If 1 in 10000 non-CFC defaulted and 2 in 10000 CFC defaulted, this would be twice the rate even though a difference of only 1 person. Statistics can be presented any number of ways to create or change perception. That's fairly common knowledge. What we don't have here is a comparison. We don't know what the default rate for the persons inside and outside of the CFC program had been in the past. If we could find that those who used the program had previously defaulted at the same or lesser rate, that would be of significance.

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My concern is....

by EdHannigan Feb 2, 2010 10:19PM PST

that the Admin/Gov't will see the program as a model from future programs, in with case a "small" percentage would have a big impact.

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Hey...I'm not big on these bailouts but,

by Steven Haninger Feb 2, 2010 11:24PM PST

if anyone wants to report on the success or failure of a project, they're going to need solid supportive evidence one way or the other. This means good comparative numbers both before and after and, in this case, in similar economic climates. Obviously there's no way to do a double blind for statistical need but, here, we have no comparative data at all.

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Percentages don't tell the whole story

by Diana Former Forum moderator Feb 2, 2010 10:05PM PST

How many subprime loans were made? The buyer's remorse was 1 in 5. That means that 4 were happy they did it (that's 80%). Also remember that the interest rates on subprime loans are very high. Good credit might get less than 10% while bad credit would get 25%. That may be $100 difference in payment.

Diana

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I had a thought...

by J. Vega Feb 2, 2010 10:50AM PST

I was reading a 2008 report on auto repossessions. It mentioned that the average new car had a negative equity of $4250. This makes sense, as the moment you drive it off the lot its value goes down.
This caused me to have a thought. With that program, the government gave buyers $4500. So if you looked at it a certain way, I guess you could say that the taxpayers adsorbed that negative equity.
O.K., with that in mind, could lenders in those cases now be more prone to repossess? My thought is that in a repro, the lender sells the car and the borrower is liable for the excess over what is owed. Before tat program, there was that negative equity, and the lender worried about collecting that difference - you can't get blood out of a turnip, and all that. But if the program in effect eliminated that negative equity, might the lender be more likely to repossess, as the vehicle would have a good chance of being sold for it's actual value?
If this were to be the case, could it be possible that that program made it more likely for a vehicle in arrears to be repossessed? The term "unintended consequence" comes to mind. Just a thought that hit me.

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