Friday, July 31, 2009

Cash For Clunkers, Converter Box Coupons and KFC Grilled Chicken

Once again the Obama administration has found a way to showcase government's inability to play in the free market. The government's $1 billion "Cash For Clunkers" program has been suspended after already spending close to $150 million in a week on 22,000 vehicles with reserves of $850 million for pending applications. You can bet that their will be a bill down the road to add more taxpayer funding to this program because it was not fair that everyone could not participate.

The program that is officially called Car Allowance Rebate System (CARS), was designed to help jump start auto sales by offering consumers $3,500 or $4,500 rebate if they trade in a used vehicle that gets 18 mpg or less and buy a new car that is more fuel efficient. But just like the digital t.v. conversion box coupon program the government under estimated the consumer response.

The digital t.v. conversion had budgeted $1.3 billion to assist consumers with their conversion to digital broadcast on older television sets. But the money ran out and consumers were still waiting for their $40 coupons to purchase the set top boxes. The official conversion date was then extended from February to June to allow for additional $650 million in funding from Obama's "stimulus package" and to get more coupons in the hands of the populace.

Both these programs have the same thing in common. Government bureaucrats are not the best people at forecasting expenses. Although the DTV conversion coupons were redeemed at about 55% the money has been allocated and you can best believe that it will not be reallocated back to the treasurey once the final coupons have reached expiration.

With the CARS program the dealers are the ones that may be on the hook. They have to give the consumer the rebate off the vehicle price up front and wait for the government to approve their application for reimbursement on the vehicle but not until they have proven that they have chemically destroyed the engine and rendered the car unsaleable. Thus if the bureaucrats decline an application the dealership does not get reimbursed and will have to eat the loss because they will have a car that cannot operate.

What does all of this have to do with KFC Grilled chicken? Nothing and everthing; except that even private enterprise can sometimes underestimate consumer demand. KFC chose the queen of daytime talk, Oprah Winfrey, to help launch a free grilled chicken dinner promotion and were innundated with angry customers who were being turned away at stores after they begin to run out of chicken. The difference is that KFC realized that they had a problem on their hands and still promised free chicken and a Pepsi as a raincheck to those who did not get their meal on the day the promotion ran. KFC did not use taxpayer money to fund this obviously expensive product launch promotion but paid for it from the ordinary running of their business. KFC's president, Roger Eaton, apologized and made good on his company's plan to offer a free trial of their latest product.

Once again the government has under projected demand and expenses for another government program. Yet they think that we will take their word at how much health care reform will pay for itself when these two programs indicate that they have no clue as to consumer demand or how to fund it. Every program the government has ever launched has cost more than what has been budgeted but now health care will pay for itself and possibly provide a savings to the government. Ha Ha.

These are my words. Please post yours!