Cash for Clunkers – Just Another Bad Idea

The “Cash for Clunkers” program — which offers a rebate of up to $4,500 for people to trade in their gas guzzlers (the vehicle has to get below 18 MPG to qualify for the full rebate) for new, fuel efficient vehicles — has, for the most part, been hailed as a huge success.

The U.S. auto industry has seen sales soar, and environmentalists have been happy to see people trading in their Ford Explorer for a Ford Focus.

That being said, I’m here to tell you why the Cash for Clunkers program is a waste and is just perpetuating our current financial problems.

Before I get into why the Cash for Clunkers program is bad for the average consumer, let’s talk about the good intentions in which the program is rooted.  The heart of the Cash for Clunkers program aims to serve two causes:

  1. Help the United States automotive industry sell more cars by incentivizing people to purchase new cars
  2. Help the environment by having people trade in less fuel efficient vehicles for vehicles that get better fuel economy

Again, the basic idea of this is program is great.  It has helped to stimulate car sales — Ford posted its first monthly sales gain in nearly two years this past month — and it has helped to get more fuel efficient vehicles on the road.  Based on the latest statistics, the average gas mileage of trade-ins has been 17 mpg, while the average newly purchased vehicle gets 25 mpg, nearly a 50% increase.

So, as a site dedicated the fuel economy, on some levels I have to applaud the program.

That being said, overall, I have to rate this program a complete failure due to the fact it is putting more strain on the debt-burdened consumer and the deficit happy Federal government.  Here’s what I mean:

  • The Consumer: Basically, the Federal government is offering people a $3,500 to $4,500 rebate to buy a vehicle that likely costs anywhere from $15,000 to $30,000.  One of the reasons why so many of us are in trouble financially is because over the years we’ve taken on too much debt.  This program encourages more of the same, leaving consumers even more strapped for cash and fostering an unstable and unsustainable economy.  If someone offered you 15 cents if you gave them $1, would you do it?  I wouldn’t either.
  • The Federal Government: In case you hadn’t noticed, the Federal government has a national debt pushing $12 trillion.  Just this year alone, the government is going to run over a trillion dollar deficit.  In order to finance the soon to be multi-billion dollar “Cash for Clunkers” program — along with every other bailout and stimulus — the Federal government has had to borrow money, pushing the country deeper into debt.  While in the short term this may not pose much too of a problem, in the long term this debt points to two certain things, neither of which are good: high inflation and higher taxes.

In the short term, the Cash for Clunkers program may provide a boost to the auto industry and the economy as a whole, but in the long term I see this program failing to live up to the hype, and dragging both the average consumer and the Federal government down with it.

For more information on the Cash for Clunkers program, check out the official website: http://www.cars.gov/

Comments

  1. We have something similar within the UK.

    The government is providing people a scrappage allowance for each car that is over 10 years old when they purchase a brand new car.

    This is all well but most people do not have the money within the current climate to pay for a brand new car.

  2. When is it ecologically correct to scrap a 15mpg car for a 20mpg car? What is the environmental cost of producing a new car? Doesn’t it only add confusion to add in the debt concerns? Is the right economical answer also the right ecological answer? If I calculate that I will save enough gas money by trading in my 15mpg clunker for a 50mpg hybrid, then is it also the right thing to do for the environment?

  3. I don’t buy your arguments. Those are well-worn old saws, long on rhetoric and short on facts. Easy to say ‘we’ve taken on too much debt.’ But not all debt is bad. I would say being in debt for an old, expensive-to-keep vehicle is bad. While transferring that debt to a new, safer, less-expensive-to-keep one is better. It is simple economics, for anyone who keeps a budget. I am middle class, and I expect to live with a car payment and a house payment, and have for years. To have a lower TCO for my car is a long term benefit. Fact is, people are still going to buy cars, and they will for a long time to come. What is the problem with a program that folks like, and it works? It isn’t for everybody, but it doesn’t have to be.

    I am just sorry I missed out on this program. I would have gladly traded in my 5 year old car. To have my drive-off depreciation on a new car paid for me is great. Notice how the Cash for Clunkers payoff is roughly equal to what you lose when you drive off the lot? http://pfinvesting.com/2007/08/13/car-depreciation/

    I agree the mileage ‘increase’ of U.S. cars is laughable, but any improvement is better than none. Remember how the suggestion to keep tires inflated was laughed at, until it resulted in lower gas consumption? When millions of us save a little, we make a big difference.

    And the Federal deficit line? Oh, please! Point the finger at real waste, like the Defense budget or pork legislation. At least the Cash for Clunkers program benefits Main Street, instead of Wall Street.

  4. I do not like the idea of using US tax payer money for folks to by foreign made cars. It will cost jobs and slow the economic recovery by increasing the debt. The stimulus that we need is a tax cut like the one that President Kennedy pushed through.

  5. Meanwhile, I still can’t deduct expenses related to my bicycle, my primary form of transportation (I’ve never owned a car). Awesome. Thanks Government Motors!

  6. This cash for clunkers program is a very well hidden scam.
    Look at it logically with the statements for this program

    1. It is only for cars made post circa 1988
    2. It uses the EPA estimated mileage
    3. The car engines are toast afterwards because they more or less put a sand solution in the engine.
    4. Other parts for the car can be scrapped
    5. For cars, it’s 3,500 and 4,500 for trucks

    Let’s call them out on a bunch of this stuff right now

    1. Through natural attrition, older cars will be taken off the road. How many cars do you see from the 70’s or 80’s on the road presently- maybe one or two? More or less, cars get to a certain point where sinking money into them is not worth it- it’s worth just buying another car. If you have to put a new engine and tranny in a car, you are talking 5/6 K- that’s the same price as a used car
    2. This program uses the EPA estimated mileage. Estimated and educated guess are synonymous. More or less you are basing this number assigned to a car or truck based on the engine size and weight and their driving conditions- This is typically a bogus number- recently Honda and the EPA got in alot of trouble for it (class action lawsuit against Honda for using numbers that were significantly higher than the actual mpg).
    3. Some perfectly good cars are being wrecked and some of the parts CANNOT be recovered due to this- engine, pistons, more or less internals of the engine.
    4. This will be destroying the used parts industry for those cars by hitting them with a double whammy. (basic supply and demand)- No cars needing repairs = no supplies needed and at the same time getting a window switch, CD player, rims, etc, to a mid-90’s SUV is going to be quite easy since every tom, dick and harry junkyard will have a number of these- so the price is going to be very cheap. That cuts into their profit margin and it KILLS the replacement part industry for those cars.

    What would happen to those cars otherwise- some of the cars were sold as cheap used cars? and who would those cars be sold to?
    They would be sold to people who could afford them, but basic supply and demand- less used cars= higher prices for the used cars to be sold.
    Who would normally buy a post circa 1988 used car with a bad mpg rating?
    Kids or people who can not afford a new car. The people who may not be able to afford it are the middle and working class depending on their financial situation.

    Who in the end will pay for this program? The bonds are going to come due 20 to 30 years from now. The teenagers and people in their 20’s now. Look at it this way, if someone said to you- I’ll give you $4,000 now, but 20 years from now, your two kids are going to have to pay me $4,000 each, would you do it?

    Now lets look at the aspect of providing jobs for the car industry
    Yes, you are providing jobs for the car dealerships, but at the same time, you are taking jobs away from mechanics, parts suppliers, and used car dealers- it’s a moot point- it’s just a job shift. Secondly- this is going really screw over dealerships in the end- people only buy a finite amount of cars per year- so this massive sale of cars in a few months will lead to a “dry season” later on, possibly laying off salesmen, etc.

    Let’s look at the environmental aspect- yes I’ll give him that the new vehicles get improved mileage, but it’s a matter of thinking long term or short term. Let’s take that billion dollars and divide it by 3,500 (car rebate amount)= around 290,000 cars doubled the gas mileage. That’s fine, but you are still releasing CO2! You are treating a symptom, but not treating the problem. The real problem is that we are using combustion engines which are notoriously inefficient.
    Here’s a good analogy- you go to the doctors for an itchy rash- the Dr tells you it’s malignant skin cancer, but he’s not going to remove it (because he does not like the sight of blood) and prescribes you a cream to make the rash less itchy- cutting the amount of inching in hald. The problem is still there and will eventually cause problems, he’s just removing a symptom.
    Thinking long term, a better idea would have been to install 350 MW of wind energy (1.07 billion) since the electric cars are only a year or two away. That would be enough to power 420,000 of the Lotus ZapX (fast, overpowered, 644 hp, SUV type electric cars- not the small compact 3-wheelers like the Aptera and Persu)- no pollution!

  7. Those were my thoughts all along. Most people drive a clunker because that is what they can afford. Some people were hanging on to a clunker and it worked in their favor since they had the money to purchase the new vehicle.

    I say give it two to three years when the people realize they shouldn’t have bought their new car. We may be hearing of reposessions of those new cars. It was such a short timeframe that everybody wanted to jump on this great opportunity. We live in an instant gratification society, and we have seen where that has gotten us.

    Can I trust that the government fully thought this whole thing through? Their track record on the bank bailouts, car bailouts does not work in their favor.

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