Cash For Clunkers or Loans for Losers?

Loans for losers, that is harsh. Right now credit is tough to come by even if you are an ordinary, average Joe, let along a credit deadbeat. Congress is searching for ways to motivate Americans to buy cars. But how to do it? One idea is to give car buyers a tax deduction for sales tax and interest on car loans. That would give Joe Six Pack an average savings of $1,300 on a $25,000 car.

Is an extra $1,300 really going to make you that much more likely to buy a car? Personally, I think not. Walk into any dealership today, negotiate a deal and then demand an extra $1,300 off. In this climate, the dealership will undoubtedly try to accommodate you. Getting more money off a car isn't a problem these days. Just take a look at Chrysler's Plus Plus We'll Do Anything promotion.

Another idea being floated is to improve the likelihood that a buyer can qualify for a loan. Ask any car dealer today and they'll tell you, sales would be a lot better if banks didn't keep turning down loan applications. If the government were to insure auto loans, lenders would be much more likely to make funds available. The danger here is that the government will simply create a new pool of toxic loans that taxpayers will end up being responsible for.

Should the government do anything? It would seem that programs like this are ripe for abuse. Are tax dollars getting the best bang for the buck by mainlining so much cash into the auto industry? While I was and still am in favor of the funds provided to automakers to stave off bankruptcy, I am much more skeptical of this line of thinking. The possibility that we simply end up pulling car sales forward, only to have them plunge when incentives have been removed, or I end up buying a car for someone because they flunked out on their loan is not appealing to me.

Our current automotive manufacturing and distribution system needs to right-size itself and slathering rich frosting over a lousy cake isn't going to help matters in the long run. Let's help the industry lose weight rather than give it a greasy cheeseburger.

source: cnn