My Friend the Car Dealer Says...

[NoDrama]

Just another loophole I found in your argument this morning…


You claim that the “break – even point”, which we all already know you misused, and therefore don’t really understand it’s purpose in business, to be in 6 years.

ACTUALLY, taking into account that the yearly savings by Americans will be 733 million per year, plugging that into an annuity which:

PV = -103,571,000, this number I calculated assuming the 690,114 americans that took to the CARS program received an average of 1500 dollars, I just made this figure up cuz its too early to research this shit, I’m guessing actual average savings are higher.

FV = 0, because this number we are trying to find out, how much cash flow was actually generated by the program in 6 years.

IR = .02%, this is a ridiculously low interest rate, I’m just using it to humor myself and everyone else in here.

PMT = -733,000,000, yearly savings by Americans according to YOU.

N = 6, I’m gonna compound an interest of 0.02% once a year, since it takes 6 years to “break-even” according to you, then the amount of compounding periods is 6.

*Note: 0.02% annual interest will actually cost you money, because inflation occurs at a faster rate, just bear with me….

FV = $4,530,894,933, value in 6 years of the cash Americans got in CARS + yearly savings in gas.


NOW,

If CARS cost us 3 Billion dollars,

Lets compound that MONTLY, for 6 years, at 3% annual interest:

PV= 3,000,000,000

FV = 0

IR = 3%/12 = .25%(monthly interest rate to be compounded, if you dnt understand look it up)

N = 72

PMT = 0.

That comes out to $3,590,845,402


OK, so assuming all of this is CRYSTAL clear now, now that I have shown you every single variable that has gone into my calculations, it is very apparent that CARS will not break even in 6 years, even if 2 VERY different interest rates are used to compound interest at different intervals. (even if the interest rate used to compound the initial investment is higher, and compounded more frequently than the cash poured into the economy + yearly savings in gas).

The program cost American tax payers 3 billion dollars, which in 6 years would be equal to 3.5 billion dollars, But what it will generate in cash flow in American pockets, and therefore the American economy in 6 years is 4.5 billion dollars. Assuming the 3 billion dollars the gov't spent for some reason earns more interest. If interest rates were kept constant betweent the two calculations, the 4.5 billion dollars would be higher....


Tell me how this program is a “failure”????

You forgot about inflation. It is very possible to see inflation hitting double digits in the near future, that will for sure eat up a large portion. You also forgot about the inevitable rise in oil prices and subsequent rise in gasoline prices, that should pretty much eat up the rest of the difference.

This program will do more harm than good by pulling a whole years production forward, watch now as none of the dealers can sell any of their new cars.

People are not really spending, only the government is spending. Government largesse may look good because the people providing the stimulus are also providing all of the statistics to back up the claim that it is a good thing for the economy. It is not.


If no one will buy your product then you have to find a way to stop the loss of money, usually companies start by laying off employees. Once all the people who bought those new cars and have 5+ years of payments to make lose their job, then the car will be repossessed and all that money will be for nothing and the consumer will have to take the bus.

My 2 Cents.

 

[redivider]

You forgot about inflation. It is very possible to see inflation hitting double digits in the near future, that will for sure eat up a large portion. You also forgot about the inevitable rise in oil prices and subsequent rise in gasoline prices, that should pretty much eat up the rest of the difference.

This program will do more harm than good by pulling a whole years production forward, watch now as none of the dealers can sell any of their new cars.

People are not really spending, only the government is spending. Government largesse may look good because the people providing the stimulus are also providing all of the statistics to back up the claim that it is a good thing for the economy. It is not.


If no one will buy your product then you have to find a way to stop the loss of money, usually companies start by laying off employees. Once all the people who bought those new cars and have 5+ years of payments to make lose their job, then the car will be repossessed and all that money will be for nothing and the consumer will have to take the bus.

My 2 Cents.

companies do not use laying off employees as a first resort. price cuts usually begin with cuts to marketing, then by lowering capacity. severance pay clauses with unions in the united states make mass layoffs not too attractive to companies. it is cheaper to still have workers hired.

inflation will not hit double digits any time soon. the FED, that company many people hate, has actually been very successful at controlling inflation with its determination of interest rates, assuming that they will let inflation go out of control is absurd. it is not in their best interest, and being a company, they do have interests to protect.

that inevitable rise in oil prices is only true if OPEC suddenly drops production, and IF current usage keeps constant. given that cars are becoming ever more efficient, and alternative fuel sources are slowly making its way into the marketplace, current usage of oil can only drop, and slowly being replaced by hydrogen cell vehicles, fuel electric hybrids, bio diesel, ethanol, among others....

people are really spending, just a lot less. it is one of the causes of economic contraction.

"This program will do more harm than good by pulling a whole years production forward, watch now as none of the dealers can sell any of their new cars."

i have no idea what that means... you cannot "pull" a whole years production forward. and if you are implying that companies are going over-capacity to produce more cars for some reason... they are having trouble surviving this while working UNDER capacity, so why the hell will they increase production???????? pleeeeeaaasee....

"Once all the people who bought those new cars and have 5+ years of payments to make lose their job, then the car will be repossessed and all that money will be for nothing and the consumer will have to take the bus.'

this paragraph implies that every single person that took to CARS will be laid off... given the fact that the economic recession seems to be giving signs of slowing, it is difficult to believe that EVERY single person that seized the opportunity will be laid off... even if half the people that bought the cars during the program got laid off, that does not mean that 2 minutes after being laid off the REPO guy will show up to take the car... it might be possible, it's just not likely.....

try again.....

*ps. i do not advocate the use of ethanol as an alternative fuel source. all land necessary to produce the corn that's used for ethanol could be used to produce food, therefore providing more supply, decreasing food prices in this country. i also believe that 3rd world countries will take to the production of corn to produce ethanol, rather than producing food for their own people.

 

[CrackerJax]

Cash for Clunkers wasn't about helping the environment OR saving money. It was an attempt to raise automobile sales figures and save the auto makers/dealers from going out of business. I'd say it was pretty successful.

It was not successful. It only compressed the market into a tight window.... now there is a big lag since ppl that were waiting jumped early. Except there is no one behind them to take their place.

We didn't need to blow 3 Billion to do that.

 

[redivider]

It was not successful. It only compressed the market into a tight window.... now there is a big lag since ppl that were waiting jumped early. Except there is no one behind them to take their place.

We didn't need to blow 3 Billion to do that.

actually, it was a success... look at my above posts... i did not make those numbers up, i didn't look them up in some liberal fan site.... i calculated them using actual methods for determining time value of money. 3 billion dollars today is 3.5 million in 6 years. BUT, thanks to the CARS program, an annuity can be established, so that 3 billion dollar investment in the economy today, turns into 4.5 billion dollars flowing through the economy in 6 years.... 1 billion dollars in additional economic activity...1 BILLION...

how that can be classified as a failure is beyond comprehension...

and look at the interest rates i used.... 0.20% annual interest rate on the 733million dollar per year in gas savings, that my friend, is the annuity that got estabished, that if it wasn't for the program, would not exist....

TBills, the securities issued by the federal government, are the safest investment you can make, they have a 3% return rate, among the lowest in the market..... so my usage of 0.20% per year as an interest rate is ABSURDLY low... it's even lower than inflation....

i guess there's no getting to anyone with strong political beliefs anymore....

 

[NoDrama]

You don't know what "Pulling" forward production is? Ever take an Micro economics class?

When you pull production forward ( Like with vehicles) you have sold next years cars this year. Next year you aren't going to really sell any cars, because people are not buying, besides they already got their car last year with Gubbermint (Taxpayer) help. Watch the numbers this coming year if you don't believe me, car sales will be in the dumps for all domestic production. Ford will do the best though, because the American people are aware that Ford did not take their money and run to Bankruptcy with it.

The Fed ABSOLUTELY depends on inflation, if you really think they are interested in keeping the value of the dollar then explain to me why the dollar has lost 95% of its value since the feds inception, but the previous 140 years a dollar lost 0% of its value? Care to explain again how the fed keeps the dollar stable cuz they don't.

 

[redivider]

You don't know what "Pulling" forward production is? Ever take an Micro economics class?

When you pull production forward ( Like with vehicles) you have sold next years cars this year. Next year you aren't going to really sell any cars, because people are not buying, besides they already got their car last year with Gubbermint (Taxpayer) help. Watch the numbers this coming year if you don't believe me, car sales will be in the dumps for all domestic production. Ford will do the best though, because the American people are aware that Ford did not take their money and run to Bankruptcy with it.

i didn't just take micro economics, I aced it, and went on to help make it's tests, while still an undergrad.... pulling production forward is a very bold statement to make... pulling production forward happens when demand exceeded your expectations, mainly due to faulty forecasting.... this happens when a company's economy is expanding....

you are just speculating about next year's numbers...

i forgot, you have a crystal ball that can tell you the future....

again, Ford is not doing better because the people know anything about bailout or whatnot.... you truly are mis-informed... ford is doing great because they are offering cars that americans are willing to buy, because Ford's cars actually meet the needs of it's targeted consumer group....

just like blaming GM's poor sales figures on it's lack of cars to sell because production had stopped and no cars were available to sell... gm had to stop production cuz no one had ordered more items cuz no one needed it. dealers were overflowing with inventory....

The Fed ABSOLUTELY depends on inflation, if you really think they are interested in keeping the value of the dollar then explain to me why the dollar has lost 95% of its value since the feds inception, but the previous 140 years a dollar lost 0% of its value? Care to explain again how the fed keeps the dollar stable cuz they don't.

maybe it's because other world economies started emerging as more and more competitive... hmmmmmmmmmm..... maybe because the american dollar used to be based on gold bullion, not paper money?? hmmmmm... nononno... i forgot.... it's because of the fed...

the fed has no authority over the value of the dollar, FINANCIAL MARKETS do....

the fed just try to control inflation by determining interest rates... do you really want me to explain this?? OK,

"new" money is created when the Fed lowers it's interest rate. the interest rate says that banks must keep a minimum amount of money(equal to the interest rate percentage x total deposits in that bank) either in the FED deposit accounts or in each particular banks own vaults.... when the interest rates drop, then that minimum requirement to keep money locked or "unused" drops, so banks can take more of the money deposited in their accounts and use it for things such as loans.... money supply increases

when the interest rate increases, then banks have to take money people deposited in their accounts (which is the same money they use for loans etc. FYI) and take a larger percentage of it and "lock it down" and cannot use it... what happens here is that that money people deposited does not go back into circulation, so the money supply drops....

get it??

money supply is the very core of inflation... if you don't understand these concepts, you shouldn't even be talking about inflation in the first place....

 

[hom36rown]

You seem smart enough,

Answer me this:
if you calculate interest on 3 billion at 10% over 5 years it will cost 100 million plus interest charges,, the break even point will be in about 6 years,,
Break even formula:
X = FC/SP-VC
Where:
X = break even point
FC = fixed costs
SP= Selling Price
VC = Variable Cost
Fill in the above formula, and tell me where the HELL does time frame fit into it… it doesn’t, because break even analysis takes into account the costs of making something, it’s selling price, and the QUANTITIES sold…. The final number is not a date, it’s a QUANTITY…You did not mention any of the actual variables that go into cost-volume-profit analysis…. If you can please specify… I’m very knowledgeable in accounting, management science, and financial markets…. Enlighten me, wise one….

Ok, so obviously that is not the correct equation for this situation, now is it? The break even point, according to the OP, is the point where money saved in oil consumption equals the money spent on the cash for clunkers program...of course you could look at many other factors in deciding whether or not cash for clunkers was a succesful program, but this is definitely one way to look at it. And the OP's math is correct, using the averages that he used. He figured out that it would save on average 733 million a year in oil consumption...So the break even point, when looking at the cost of the program in terms of money saved in oil consumption...is calculated by dividing the cost of the program, including interest, by the savings in oil consumption...which comes to about 5 years.

That was exactly one of the goals of the program. To have people make money from something that was worth nothing. The purpose of the program was to give people a chance to get something from cars that would normally have “immaterial” trade in value. Why is that wrong?? oh, it's just that you think that getting money in american pockets, so they can spend that money and provide economic activity is wrong....

Umm, well many would protest to the fact that we put that money in people's pocket...by taking it out of other people's pocket!

“Plus of course, most of the money according to the government went to Foreign car manufacturers, because Government involvement, stopped production of GM and Chrylser and they weren't making cars for 4 months. Hello! don't make any can't sell any!”

Most of the sales went to foreign car manufacturers because GM and Crysler were unable to identify the needs of American car buyers. They pumped millions and millions of dollars into big cars Americans don’t want anymore. These companies were being mismanaged from befre the government took over. If it wasn’t for the gov’ts help they would probably be bankrupt right now, and even MORE people would be unemployed. The reason for lower capacity was the fact that no one was buying their cars. Why keep making cars that just don’t sell because the “target consumer” is not properly identified??

True, but you miss the point. The point is...that we took money out of americans pockets, so that we could subsidize the purchase of foreign cars, so more money can be shipped overseas...yes, that is really going to help the American economy.(not)

 

[CrackerJax]

The glaring flaw in your equation is the 3 billion is BORROWED WITH interest.

it's still a free fall of wasted time and money.

 

[hom36rown]

I agree, waste of time and money.

 

[redivider]

"Ok, so obviously that is not the correct equation for this situation, now is it? The break even point, according to the OP, is the point where money saved in oil consumption equals the money spent on the cash for clunkers program...of course you could look at many other factors in deciding whether or not cash for clunkers was a succesful program, but this is definitely one way to look at it. And the OP's math is correct, using the averages that he used. He figured out that it would save on average 733 million a year in oil consumption...So the break even point, when looking at the cost of the program in terms of money saved in oil consumption...is calculated by dividing the cost of the program, including interest, by the savings in oil consumption...which comes to about 5 years."

ok, you seem to forget that the 733 million dollars in savings is per year, and will continue long after the "break even point" (which you continue to misuse) is reached.

the 3 billion dollars was borrowed money, which will have to be paid back with interest, but the interest is FAR lower because the product sold was T.Bills. THey have very low interest rates, far lower than that the 733 million dollars per year would be able to gain in the open market within the United States...

keep drinking the kool aid my friends, ignorance is blisssssss........

 

[redivider]

anybody else??

 

[hom36rown]

"Ok, so obviously that is not the correct equation for this situation, now is it? The break even point, according to the OP, is the point where money saved in oil consumption equals the money spent on the cash for clunkers program...of course you could look at many other factors in deciding whether or not cash for clunkers was a succesful program, but this is definitely one way to look at it. And the OP's math is correct, using the averages that he used. He figured out that it would save on average 733 million a year in oil consumption...So the break even point, when looking at the cost of the program in terms of money saved in oil consumption...is calculated by dividing the cost of the program, including interest, by the savings in oil consumption...which comes to about 5 years."

ok, you seem to forget that the 733 million dollars in savings is per year, and will continue long after the "break even point" (which you continue to misuse) is reached.

the 3 billion dollars was borrowed money, which will have to be paid back with interest, but the interest is FAR lower because the product sold was T.Bills. THey have very low interest rates, far lower than that the 733 million dollars per year would be able to gain in the open market within the United States...

keep drinking the kool aid my friends, ignorance is blisssssss........

Lol I didnt forget anything, I was just showing you that the break-even equation has no application here. By break even, the OP just means whether or not the program was worth it...obviously not literally breaking even...we are not making any revenue of the cash for clunkers program. This would not be the method I would use to calculate whether or not cash for clunkers is succesful, but as I said, it is one way...and the OP's math was correct.

 

[Xeno420]

It's good money all around. How much actual cash do you guys think those 'junk cars' will bring in? The materials are surely being recycled for something else and in turn will make even more profit.

 

[jrh72582]

anybody else??

Oh I'm with you man. Your numbers are correct and you clearly know your stuff.

 

[redivider]

i know someone that is involved in the secondary market for car electronics....

he gets each car ECM for 50-60 dollars a piece if he orders 100+...

so he spends: 5500 (55 for average x 100 computers)

each one of those goes for at least 200...

200 x 100 = 20,000

20,000 - 5500 = 14500 gross profit

minus 6,000 expenses

8500 income before taxes

8500 x 38% (more or less average amount of income taxes levied on corporatins) = 3230 in income taxes.

5,270 in income for that particular enterprise, 3,230 in taxes to the government. and 6,000 cash going to other corporations.....

win/win all around....

 

[NoDrama]

i didn't just take micro economics, I aced it, and went on to help make it's tests, while still an undergrad.... pulling production forward is a very bold statement to make... pulling production forward happens when demand exceeded your expectations, mainly due to faulty forecasting.... this happens when a company's economy is expanding....

you are just speculating about next year's numbers...

i forgot, you have a crystal ball that can tell you the future....

again, Ford is not doing better because the people know anything about bailout or whatnot.... you truly are mis-informed... ford is doing great because they are offering cars that americans are willing to buy, because Ford's cars actually meet the needs of it's targeted consumer group....

just like blaming GM's poor sales figures on it's lack of cars to sell because production had stopped and no cars were available to sell... gm had to stop production cuz no one had ordered more items cuz no one needed it. dealers were overflowing with inventory....




maybe it's because other world economies started emerging as more and more competitive... hmmmmmmmmmm..... maybe because the american dollar used to be based on gold bullion, not paper money?? hmmmmm... nononno... i forgot.... it's because of the fed...

the fed has no authority over the value of the dollar, FINANCIAL MARKETS do....

the fed just try to control inflation by determining interest rates... do you really want me to explain this?? OK,

"new" money is created when the Fed lowers it's interest rate. the interest rate says that banks must keep a minimum amount of money(equal to the interest rate percentage x total deposits in that bank) either in the FED deposit accounts or in each particular banks own vaults.... when the interest rates drop, then that minimum requirement to keep money locked or "unused" drops, so banks can take more of the money deposited in their accounts and use it for things such as loans.... money supply increases

when the interest rate increases, then banks have to take money people deposited in their accounts (which is the same money they use for loans etc. FYI) and take a larger percentage of it and "lock it down" and cannot use it... what happens here is that that money people deposited does not go back into circulation, so the money supply drops....

get it??

money supply is the very core of inflation... if you don't understand these concepts, you shouldn't even be talking about inflation in the first place....

Inflation IS money creation. The feds only have so much control on keeping interest rates at low levels, the BOND market is what really controls the floor for interest rates. And money in reserve is not a function of the fed interest rates. The Fed reserve requirement is set by the FOMC and currently is set at 10% of liabilities.In no way is it the discount rate multiplied by total deposits, just you saying that already clues me into the fact that you don't know what is going on. If what you say were true and the feds discount rate were the basis for reserve requirements then you would only be required to hold 1/2 % of total liabilities.

New money is created when the Fed buys T-Bills/Bonds. New money is created when a Fed chartered Bank makes a loan and then uses the proceeding deposit to make yet another loan. Each time the bank makes a loan the proceeds of that loan are then redeposited and show up as a deposit upon which even more loans can then be made. The fed does not create money directly with interest rates since that is not a function of the reserve requirement.

If the fed has no control over the value of the dollar then how is it even possible to have hyperinflation, like Weimar Germany, Yugoslavia, and Zimbabwe?? They all had central banks and their currency was valued at ...Bupkis, nada, zero, nothing. So saying that the Fed has no control over the value of the Currency once again clues me into the fact that you don't know what your talking about.

 

[redivider]

Inflation IS money creation. The feds only have so much control on keeping interest rates at low levels, the BOND market is what really controls the floor for interest rates. And money in reserve is not a function of the fed interest rates. The Fed reserve requirement is set by the FOMC and currently is set at 10% of liabilities.In no way is it the discount rate multiplied by total deposits, just you saying that already clues me into the fact that you don't know what is going on. If what you say were true and the feds discount rate were the basis for reserve requirements then you would only be required to hold 1/2 % of total liabilities.

New money is created when the Fed buys T-Bills/Bonds. New money is created when a Fed chartered Bank makes a loan and then uses the proceeding deposit to make yet another loan. Each time the bank makes a loan the proceeds of that loan are then redeposited and show up as a deposit upon which even more loans can then be made. The fed does not create money directly with interest rates since that is not a function of the reserve requirement.

If the fed has no control over the value of the dollar then how is it even possible to have hyperinflation, like Weimar Germany, Yugoslavia, and Zimbabwe?? They all had central banks and their currency was valued at ...Bupkis, nada, zero, nothing. So saying that the Fed has no control over the value of the Currency once again clues me into the fact that you don't know what your talking about.

oh you are so wrong you are pathetic...

if you would give that statement to any professor of any college they would laugh in your face...

the bond market reflects the FED's set rate, it is not the other way around... it normally floats about 3-4% more than the FED requirement... the FED requirement is to ensure people that at least some part of their money is safe... it does reflect the deposits, because that, along with it's creditors, is what the set interest rate seeks to protect.

the amount of money locked down by the set rate by the FED directly influences money supply, whether you believe it or not.

the cause of hyperinflation was due to the fact that THOSE particular reserve banks were unable to control money supply.

the fact that you spent 5 hours googling terms, does not mean I do not know what I am talking about. i aced every single course of finance i ever took, attended over 60 seminars throughout my college career, have sat down to discuss money supply with board members of some of the most important banks in this hemisphere, i have nothing to prove to you, especially on a marijuana growing site.....

 

[CaRNiFReeK]

no rebuttals? no arguing?? am I right??

did the starter of this thread just start throwing big words and amounts around???

Brother, we could sit here and henpeck on and on ad nauseum about the irritating nuances of our differences of opinion. For example:

“Let's also analyze something,, if Obama told you during his campaign..."

"That was exactly one of the goals of the program. To have people make money from something that was worth nothing. The purpose of the program was to give people a chance to get something from cars that would normally have “immaterial” trade in value. Why is that wrong?? oh, it's just that you think that getting money in american pockets, so they can spend that money and provide economic activity is wrong...."

The fact is, that at the core of the issue- at the moment when taxdpayer dollars change hands into fabulously wealthy yet bankrupt companies, (who could be bailing their own company out) all these big numbers only serve to quantify the value of something for nothing. You said it yourself, and I certainly know it. So all that craziness you beat me up with only serves to rationally and mathematically justify something that makes no sense: " To have people make money from something that was worth nothing."

That is how you economist types are. Inundate people with all of the tedious numbers that other, smarter people than you say, fairly represent the minor statistic you are trying to exploit for your own gain, and take reasonable people off of the real issue at hand.

 

[NoDrama]

oh you are so wrong you are pathetic...

if you would give that statement to any professor of any college they would laugh in your face...

the bond market reflects the FED's set rate, it is not the other way around... it normally floats about 3-4% more than the FED requirement... the FED requirement is to ensure people that at least some part of their money is safe... it does reflect the deposits, because that, along with it's creditors, is what the set interest rate seeks to protect.

the amount of money locked down by the set rate by the FED directly influences money supply, whether you believe it or not.

the cause of hyperinflation was due to the fact that THOSE particular reserve banks were unable to control money supply.

the fact that you spent 5 hours googling terms, does not mean I do not know what I am talking about. i aced every single course of finance i ever took, attended over 60 seminars throughout my college career, have sat down to discuss money supply with board members of some of the most important banks in this hemisphere, i have nothing to prove to you, especially on a marijuana growing site.....

LOL I didn't have to Google a thing. For deposits over 44 million there is a 10% requirement, dont believe me? Lets ask the Fed shall we? http://www.federalreserve.gov/monetarypolicy/reservereq.htm

Show me where it says it is a function of deposits multiplied by the discount rate as you so blindly said earlier in your post.

"new" money is created when the Fed lowers it's interest rate. the interest rate says that banks must keep a minimum amount of money(equal to the interest rate percentage x total deposits in that bank) either in the FED deposit accounts or in each particular banks own vaults....

Just because you got an "A" at your community college and know the local bank teller does not impress me.

yeah i know the fed actually sets the rate, unfortunately if they set it too high, then no one buys bonds, if no one buys bonds the government stops operating since it runs on credit. Then you start to see rates on the bonds go up so that they can get people to purchase them, which then sets a floor for the fed. Try using your education to look at how its actually done, not how it would occur in a formula.

And I also understand how lowering interest rates make the borrowing of money easy and relatively inexpensive so consumers run in droves to get those home equity loans at 4%. But itself does not create money.

 

[redivider]

yeah, throwing insults to make yourself feel better is ok... it's a natural reaction to being wrong.

you do not know the real intentions of the federal reserve bank, why it was put in place, and last but not least how they directly influence money supply. you do not understand the complexities of the markets, that's ok, not everyone can know as much as I do.

keep telling yourself whatever you want. you don't know me, where I've been or where I'm going.

you're just mad because i was able to prove that "nazi" obama was able to put in place a program that was VERY successful, in every way, shape and form... it scares you to death that this might be repeated.....

you have to deviate from the purpose of this thread and throw insults at my character, which naturally bounce off me, since stix and stones may break my bones but your words cannot hurt me.....

good bye....