Cash for Clunkers “Pink Batts on Wheels” benefits overseas manufacturers – local retailers to be hit
18/08/10
Julia Gillard’s Cash for Clunkers has the potential to create a boom and bust in the motor vehicle industry which will hit local retailers of whitegoods and other retailers who would be hit hard with reduced sales.
Below is a chart that demonstrates the rise and fall in new registrations in Germany when they introduced their Cash for Clunkers scheme.
If the scheme stimulated new sales as it is supposed to it would:
- see money flowing to overseas manufacturers as there are only two Australian manufactured cars that are eligible for the scheme compared to 968 foreign vehicles that qualify;
- mean sales of imported cars would increase creating a boom and bust in the auto trade as the German experience indicates; and,
- distort the way people spend their scarce dollars and impact on other areas of the economy.
In Germany retailers reported that the sales of whitegoods, furniture and other household appliances declined as the sale of cars went up. Also car repair businesses reported serious difficulties as car were taken off the road and scrapped.
This is hardly surprising as a dollar can only be spent once and if it is redirected by a government subsidy (which would have to be in the vicinity of $4000 or approximately $800 million not the estimated $400 million) then one sector of the economy is going to suffer at the expense of another.
This is bad policy that will blow out in cost and distort the economy. The spike in the graph above shows just how distorting the impact of the subsidy is and why it hurt the retail sector so dramatically.
It could see jobs in the retail sector dry up if overseas experience is any guide and lead to a boom and bust. Hardly good economic policy.
Why should one sector of the economy have to suffer at the expense of another because of a short-sighted scheme?
This scheme is just another “Pink Batts on Wheels.” The failed Home Insulation Scheme also distorted business activity collapsing 15 years of work into one year because of the distorting impact of the government’s subsidy…and then it collapsed.
The same would happen with Cash for Clunkers.
The only way this dud can be consigned to oblivion is to remove the incompetent Gillard government.
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