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Unintended Consequences - Cash For Clunkers May Hurt Lower Income Car Buyers

Aug 13, 2009

What happens to a market when 5% of the current supply is eliminated?   In a free market the answer is obvious - prices increase.  That is going to be the impact at the low end of the used car market.  According to an article on msnbc.com (http://www.msnbc.msn.com/id/32334931/ns/business-autos/), economist are forecasting that the Cash for Clunkers program will have the impact of increasing used car prices by up to 15% over the next month as older cars that normally would end up on used car lots are instead sent to the scrap yard.

 

Used car prices are not the only hit.  You can expect it to become more expensive to repair your older car as used parts prices may also skyrocket.  Who's impacted?  Used car dealers and used parts houses are the obvious ones who will be hurt, but what about those people who can't afford a new car even with the Cash for Clunker rebate?  This policy will likely drive replacement "cheap transportation" vehicle prices out of the reach of many of our more economically challenged populace.  Policy analysts who live in urban areas with excellent mass transit systems may not see this as a major problem, but what about a state like Wyoming, where often times even the most basic services are a number of miles away and where mass transit is nearly non-existant.

 

What is your take on this?



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Mike Lambert

Mike Lambert is the manager of the Wyoming Market Research Center in Laramie, WY.


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