A friend suggested there should be a ‘cash for clunker ex-wives’ program to replace alimony sucking old ones for new, more energy filled models. Given all the money the government is giving away, I told him it was only a matter of time.
A $300 million cash-for-clunkers-type federal program to boost sales of energy-efficient home appliances provides a glimmer of hope for beleaguered makers of washing machines and dishwashers, but it’s probably not enough to lift companies such as Whirlpool (WHR) and Electrolux out of the worst down cycle in the sector’s history.
Beginning late this fall, the program authorizes rebates of $50 to $200 for purchases of high-efficiency household appliances. The money is part of the broader economic stimulus bill passed earlier this year. Program details will vary by state, and the Energy Dept. has set a deadline of Oct. 15 for states to file formal applications. The Energy Dept. expects the bulk of the $300 million to be awarded by the end of November. (Unlike the clunkers auto program, consumers won’t have to trade in their old appliances.)
“These rebates will help families make the transition to more efficient appliances, making purchases that will directly stimulate the economy,” Energy Secretary Steven Chu said in a statement announcing the plan. Only appliances covered by the Energy Star seal will qualify. In 2008, about 55% of newly produced major household appliances met those standards, which are set by the Energy Dept. and Environmental Protection Agency.
Wow…. OK, so I have to admit I’m a little puzzled, because it seems I have to agree with Mr. Fusion. (And he knows how that tends to make me crazy….)
First of all, let’s clear up some things. When we talk stimulus, we’re talking the government injecting your future tax dollars (since we’re in deficit spending already) into the economy NOW, to try to prevent negative macro consequences. I agree with Mr. Fusion that this kind of thing would be a great use stimulus money — but that DOES NOT contradict those who claim it’s a handout/giveaway/etc and isn’t something you can just expand to TVs, beds, stereos, iPods, and whatever else — we’d run out of borrowing power. (Something we’re already increasing the risk of.)
That said, we have already planned to inject billions of dollars into the economy via stimulus. So, if you assume you’re already artificially pumping that money into the economy, then this is a great way to do it. This kind of plan puts money in a place that cause them to be spent quickly (which is what the purpose is), directly helps consumers in short term stress, and on top of it, like the CARS program, increases our energy efficiency and artificially stimulates market demand for higher-efficiency items, which typically helps bring down per-unit costs of investments in the advanced energy efficient technologies.
I want to discuss a few specific points, which I will do in another post…
ECA said,
“Take an older community, with all the heaters rated at 60%.
The first few that get better quality Heaters (99%) start to get savings.
After about 30% of the community ships over to the better heaters the price of Fuel/electricity goes UP.
WHY? The company isn’t making the same amount of money.”
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That’s not always true, because you’re ignoring some aspects of a common energy bill.
1. Lower energy use means the option to delay new generation capacity. (you did sort of touch on this)
2. Lower use of energy such as natural gas used to heat homes means the utility has to PROVIDE LESS GAS. Yes, the per unit cost of each unit of energy goes up slightly, as the utility has to pay its fixed infrastructure costs (maintaining pipeline, employees, etc.) and make a profit, but that amount will always be LESS than the actual overall savings. (I’ll get back to the poor little old lady)
3. In many states, there is a concept called “Decoupling” which is designed to deal with the very concern you’re expressing (which, to be clear, is real) — it has energy regulators working with utilities to determine what the appropriate revenue is to cover distribution costs (the cost of that pipeline), and decouples the distribution cost from the unit volume in a variety of ways that essentially eliminates the utility company’s incentive to make more money by encouraging you to use more energy. These systems aren’t universal, identical, or perfect — but it’s the right direction. It means the utility company can be given an incentive to work with me to reduce my cost, and our energy demands, though a means other than just selling us more wasted energy.
While it’s true that the fixed-costs of energy efficient improvements can be difficult for cash-strapped consumers to come up with the money for, there are solutions. Incentives from the government or a utility with such an incentive are common but not the only way. If I had a 60% efficient heater in Minnesota, I bet I could find some way to justify a loan (home equity, friend/family, whatever) for a new 95% efficiency furnace. The actual return on investment in a typical Minnesota winter would be insane and easily outstrip interest on a loan. Plus, the more the market demands energy efficient products, the more efficient the cheap items get. The technology I pay thousands of dollars for today can be employed much cheaper in the models 5 years from now, because the R&D costs will have been recouped by then thanks to people like me who will pay premium for the latest energy efficient products on both financial and environmental grounds. So, that lady who has to buy the bargain-basement heater will benefit from the fact that even the bargain basement option will be more efficient when she goes to replace her furnace, even if you ignore government and utility incentives.
I found your attempt at a parallel to stocks to be some confused and bizarre that I can barely even figure out where to begin refuting it. Companies that raise their prices when “advertisements don’t work” only profit from the consumer if you’re dumb enough to buy something at a higher price after you didn’t buy it when the advertisement touted the product at the lower price. Your claim there just befuddles me.
When companies fold, it is the investors (and/or bondholders) that get left holding the bag, not consumers. (exception: if by consumers, you mean TAXPAYERS, there’s actually some merit to this claim, but only recently, and only if the government fails to “break even” on its ownership stakes in the companies we backstopped. Last time around, we did fine there, but owning US Auto isn’t my idea of a safe investment, so I share that concern.)
If you’ve bought bad investments, that’s not the fault of the concept of owning stock in a company — it’s the fault of you and the company you bought, or, in the case of outright fraud that isn’t reasonable detectable by an investor, the fault of the perpetrator.
Father Tomb said, on August 25th, 2009 at 3:25 pm
1) saturated the marketplace with new cars that absorbed all potential future buyers for years to come
2) canabalized future price increases by becoming stuck on a competitive unsustainable price point that ended up becoming a mutually assured destructive battle between GM, Chrysler, and Ford
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1. The CARS program didn’t absorb all potential future buyers from the market. I’m looking at a new car this fall. My car didn’t meet the clunker requirements, because it didn’t match one of the two goals of the program (stimulus and increasing fleet efficiency) because it still gets double the MPG of the max allowed to trade in under the program.
I _DO_ have a problem with the program… One of the reasons I’ve not bought a new car over the last 3 years despite some people pressuring me to do so is that the modest at best efficiency improvements I can get from where my car is come at a cost of disposal and manufacture of an entire car. It’s got to be worse for the environment for me to replace a car 3 years sooner for at best a handful of MPG, when you factor in all the real costs to make a car and get it to my local lot.
2. I actually dispute that claim, though I readily admit I have no empirical data to back this up. My sense is that when consumers get cash back from a government program like this, that they do not “devalue” the item by that amount. In the case of manufacturer sales/incentives, we tend to do that — assume that if a retailer can offer you 30% off a car on sale, then the original price was simply 30% too high – or close. I don’t get the same sense from this kind of program, because the consumer knows the manufacturer is still getting the agreed price, but Uncle Sam is picking up part of the tab.
Common Sense,
It must be a strange day because as much as I hate to admit it, you make some sense. Especially with your point #2, whenever I see something with 30% (or whatever) off it was overpriced to begin with.
CVS had a sale recently. One item, Ibuprofen was on sale for $5.00 for 250 tablets if you use your CVS Card. I regularly buy them at the Dollar Store for $4.50 for the same size bottle.
As for point #1, GM and Chrysler have both recalled workers to build more autos. Ford is ramping up production again. Toyota and Honda are getting back to full production. I think the Cash for Clunkers can be shown to have worked.
it’s good idea to get some money for replacing old refrigerators.