Jeff Taylor wasn’t happy that the Senate approved another $2 billion for the “cash for clunkers” program last week.
For him, the program means fewer clunkers, and possibly less cash.
Taylor hates the term, but cars deemed clunkers under the federal program are his business.
From its lot in northwest Houston, Taylor’s JT Auto Sales specializes in selling used cars to people with credit problems.
Most of the vehicles on his lot sell for less than $10,000, and he buys them from new-car dealerships that have taken them as trade-ins.
In other words, Taylor’s inventory comprises vehicles that the government now mandates must be scrapped.
“It will cause the price of our inventory to go up,” Taylor said. “It’s going to take some of the inventory away from people who sell basic transportation.”
With the additional money Congress has poured into the program, it could remove as many as 750,000 cars from the market nationwide.
That accounts for a 2 percent reduction in overall supply, which may create a bubble in used-car prices, according to Kelley Blue Book, which tracks car values.
“We’ve seen some strengthening in values over the past few weeks,” said Alec Gutierrez, who analyzes vehicle values for the market researcher. “We wouldn’t be surprised to see appreciation of 5 to 10 percent.”
Taylor said that sort of increase can make a big difference for his customers, most of whom have an average individual income of less than $25,000 a year.
“There’s still people who need these cars,” he said. “They need a ‘clunker.'”
The program puts an unfair burden on low-income car buyers, many of whom need inexpensive vehicles to get to work, he said.
He understands that the government wants to spur new cars sales as part of an economic stimulus, and he appreciates the environmental motive behind scrapping gas guzzlers, but if he has to raise prices, it will hurt buyers who can least afford it.
JT Auto is what’s known as a “note lot.”
Note lot dealers pick through trade-ins that new-car dealers don’t want to sell. They repair them, clean them up and resell them at a markup to subprime buyers, who often pay a steep interest rate of as much as 20 percent because of past credit problems.
Lending money to people who have a history of not paying is, of course, a risky business.
If one of Taylor’s customers doesn’t pay, he eats the loss.
But the lots enable many working-class people to get to their jobs, and that benefit shouldn’t be overlooked given the 9.4 percent unemployment rate.
Besides its effect on used-car sales, the clunker program encourages incredible waste, which offends my sensibilities as both a cheapskate and a shade-tree mechanic.
The vehicles being mashed by government decree still have value, both as a whole and as parts.
At Car Care USA, a repair shop in Katy, Ray Havens said he worries that the clunker program could affect non-clunker repairs, too, by driving up the cost of parts.
“The long-term implications are the shortage of good used parts,” he said. “When you crush a car, you take away a lot of parts that have no effect on fuel economy.”
That includes body parts and engine components such as alternators and starters.
Used parts, like used cars, tend to appeal to lower-income customers who can’t afford new ones.
In this economy, increasing the hardship on people struggling the most, those clinging to their jobs and stretching their budgets, isn’t a stimulus.
Cash for clunkers is more of a political stunt, psychologically satisfying but not economically meaningful.
It’s been good for new-car dealers and the automakers, it’s tweaked the overall economy, and it may even help the environment a tad, but there are also hidden losers in this program.
Just ask Jeff Taylor. They show up on his lot every day.
Originally published in the Sarasota Herald-Tribune
