A Closer Look at Cash for Clunkers

The federal government has been giving away money for people to trade in their older cars and buy new cars. The requirements are (1):

• Your vehicle must be less than 25 years old on the trade-in date
• Only purchase or lease of new vehicles qualify
• Generally, trade-in vehicles must get 18 or less MPG (some very large pick-up trucks and cargo vans have different requirements)
• Trade-in vehicles must be registered and insured continuously for the full year preceding the trade-in
• You don't need a voucher, dealers will apply a credit at purchase
• Program runs through Nov 1, 2009 or when the funds are exhausted, whichever comes first.
• The program requires the scrapping of your eligible trade-in vehicle, and that the dealer disclose to you an estimate of the scrap value of your trade-in. The scrap value, however minimal, will be in addition to the rebate, and not in place of the rebate.

The amount of the rebate is dependent upon the class of vehicle and how much more the new vehicle gets in fuel economy compared to the old vehicle (2).

Democrats say this is a win for everyone because it will put more fuel efficient cars on the road (saving gas), it will stimulate the economy and it will help out American car companies (which they now own) (3). The first round of money went by quickly and everyone is surprised. Duh. Who is going to turn down someone else's money to buy a new car?

This will help out the car makers some, and not just by selling the new cars through the program. Since the clunkers are destroyed instead of resold, there are fewer vehicles out there for sale. And what happens to something when demand goes up and supply goes down? Right, everyone gets it in the end. So if you didn't take money from Uncle Sugar and want a new car later, be prepared to pony up even more money.

This did not help out the domestic car makers much, though. Only four of the ten most popular cars bought are from domestic car makers (4).

But who is this going to hurt? Let me count the ways:

1. Charities who take vehicles (5)


2. Used car dealers (6)


3. Auto recyclers (7)


4. Independent auto repair shops (8)


5. Car part stores


6. People who say they can't get a job because they don't have a car, and now still don't


7. State governments that collect gas taxes for road repairs and sales tax on auto parts and services


8. The American people, who once again rob Peter to pay Paul

Here are some ways this could have been better:

• Give tax breaks instead of money to those who buy new cars and donate old ones to charity.


• Graduate the money so that those who buy the most fuel efficient cars get more money -- if efficiency was truly the point of the legislation.


• Let people turn in a car of any age, not just 25 years or less. Presumably, older cars are even less efficient. Why limit it by age?


• Let people buy used cars that are more fuel efficient than what they are trading in.


• Instead of scrapping the cars turned in, let them go on the market. Remember markets?

This program should really have been called the Crummy Relief of Autos Program (CRAP). If your neighbor is driving a new car, ask to take it for a spin. After all, you paid for it.

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1. Retrieved August 6, 2009, from CARS website

2. Reed, Philip (2009, July 31). "Cash for Clunkers Car Buying Stimulus Program". Edmunds.com
Retrieved August 6, 2009, from Edmunds.com

3. "Senate Poised to Refuel 'Clunkers' for $2B". 2009, August 6.
Retrieved August 6, 2009, from FoxNews.com

4. Thomas, Ken and Laurie Kellman (2009, August 5). "Senate to Consider $2B 'Clunkers' Refill". Associated Press
Retrieved August 5, 2009, from Yahoo! News

5. 2009, August 4. "Charities Fear Pinch from 'Clunkers' Program". The Denver Post
Retrieved August 6, 2009, from The Denver Post

6. Clouse, Thomas. "Some Businesses Say 'Clunker' Program Will Hurt'". The Spokesman Review
Retrieved August 6, 2009, from The Spokesman Review

7. Tsai, Catherine (2009, July 29). "Auto Recyclers Leery of Clunkers Program". Associated Press
Retrieved August 6, 2009, from The Boston Globe

8. Fields, Gary (2009, August 6). "Clunkers Plan Deflates Mechanics". The Wall Street Journal
Retrieved August 6, 2009, from The Wall Street Journal Online