Cash for Clunkers Program

The House recently passed a Cash for Clunkers bill which aims to increase new car sales while getting older, inefficient ”clunkers” off the road. In exchange, participants can earn up to a $4,500 credit/voucher off the price of a new, more fuel-efficient car. Here’s why I don’t think it will work, and why I don’t plan to participate if it should become law.

olddodgechallenger061109
Photo courtesy of dave 7

First of all, I think it is a mistake to create artificial demand for new cars by borrowing from taxpayers. I would much rather see the four billion dollars this program will likely cost be used to pay down some of our national debt, and let the creation of buyer’s incentives be left up to car manufacturers.

With unemployment still hovering around double digits (real unemployment is actually much higher), I doubt many people are going to rush out to buy a new car simply because the government is offering cash for clunkers. Environmental concerns aside, we’d be better off financially, continuing to drive our clunkers.

What if your so-called “clunker” is worth more than the value of the voucher? You might be able to get more from a straight-up trade in, or selling your vehicle private sale, than taking advantage of the cash for clunker offer. Of course, that option does not get the cars off the road, which is a close second objective of this bill–the first is to stimulate new car sales.

If you are on the fence about the cash for clunker program, perhaps the ever-increasing gas prices this summer will help change your mind. Do you think it is a coincidence prices are quickly approaching $3.00 per gallon?

This all reminds me of the $600 tax rebate checks, which had little effect (temporary, at best) on stimulating spending. When people are worried about losing their jobs, and already deep in debt, they are usually not in a spending mood. Any additional cash will be saved or used to pay down debt. I plan on keeping my clunkers, thank you very much.

Comments

  1. In most cases you could get a better deal selling on your own. Not only that, but I think this will divert cars that normally would have been donated to charity for the tax break.

    In addition, the cars being traded in are going to scrap, which I think is wrong. A far better program would be if they bought those cars, created jobs for people to systematically break those cars down into usable parts, and make them available to people at a reasonable price. This would make it easier for people to afford to stay in the cars they already own, rather than encourage a consumer attitude. The environmental impact of staying with pre-existing cars is also preferable.

    In the meantime, car companies could create more efficient vehicles for when those cars ultimately break down. In an ideal world, car owners would have spent those extra years saving towards those new vehicles. Right?

  2. My husband drives a 1988 Jeep Wrangler, and there is no amount of money in the world that would get him to give it up. Of course, since he takes incredibly good care of it, it doesn’t really qualify as a “clunker.” :)

  3. I wholeheartedly agree with you.

    Why should I (as a taxpayer) be paying for you to get a new car? Odd….

  4. “A far better program would be if they bought those cars, created jobs for people to systematically break those cars down into usable parts, and make them available to people at a reasonable price.”

    That’s what the charities already do, though. We don’t need the government stepping in when we already have a great charity program to encourage this.

    I donated my old car to charity recently and they said 70-80% of the cars they get go for parts. Only 20% are suitable for refurbishing.

    I agree with Frugal Dad — I think this is unnecessary and wasteful on our government’s behalf. I’d favor lower business taxes and/or a reduction in the national debt instead of this. Taxes shouldn’t favor rampant consumerism.

    -Erica

  5. Yikes, bad idea. We need to stop making so many new cars and use up all the good running cars. That is way better for the earth. Plus new cars, regardless of a tax break, are expensive. Even if a new car saves you on gas, it still also has a $400 or so monthly payment attached to it. I’d rather keep my older car (1998 Chevy Lumina) and pay $50 more a month in gas, than pay a car payment.

    I also do not like how the government is getting it’s hand in everything. This scares me alot.

  6. Unless the bill has changed, this is really a “light truck manufacturer” bailout.

    Trucks are eligible for the maximum $4500 voucher without showing nearly as much mileage improvement as cars must.

  7. I would love to know what is considered a clunker. An 8 year old car that needs $1k a year in maintenance? Probably. And the person who owns that car (ahem….me) does not need a $200-$300 monthly payment just because this society frowns on owning and fixing things. Not everything should be considered disposable. Repair your washing machine? Heck no, buy a new one and amass a large amount of debt–but hey, at least your neighbors will think you’re as good as them.

  8. I’m a heretic in the debt based economy, but I agree completely about the national debt. In a few seconds it grows by more than I will ever make in my life.

    not that we shouldn’t borrow /responsibly/, but I’d like to see a /firm/ cap on how deep we go. Letting other nations and citizens invest in our success is wise to degree, while it allows us to amplify that success and share the wealth for the benefit of all parties. But let us not become dependent on it.

    These are the principles by which I intend to live my life, and I only wish enough Americans felt this way to get the message to Congress.

  9. by which I mean, despite being in a fairly knowledge based field (theoretical computer science, hopefully), I want to contribute to the country by the work of my mind and hand, and not by consuming irresponsibly to stimulate some sort of fool’s gold standard.

  10. I like your perspective about this possible law. It seems to me that the Government is always grasping for straws, and every one they grab is based on desperation instead of a real thought out plan. Someone’s agenda is being served with this possible law, so who needs rational thought and logic?

    I generally give my older cars to friends, or family that needs one, once the time comes to get a new used car. I currently drive an 85 CRX which almost drives better than some of the newer cars I’ve had. Our other car is a 91 Volvo. We’re keeping them both!

  11. I gently suggested this to my husband last night, who drives a Sable station wagon that gets approximately 15 miles per gallon. Free money! Wow! Wait- car payment? No way. We pondered what kind of fuel-efficient car he could get for the $4500 and no more….we’re still pondering. I think it’s a creative approach to economic stimulation that’s environmentally thoughtful- but the working poor, by and large the drivers of gas-guzzling clunkers, may not be any better off in the long run.

  12. This is not a fiscally responsible plan for the govt. to be taking. It’s creating another artificial economy that will again crash.

    Now, IF that plan had been available in January, despite my thoughts on it, I would have gladly taken $4500 for my 74 Datsun Pickup when I bought the 2004 Silverado Pickup (paid cash)- but I doubt that they would have given me such a deal :) As it is, I gave the 74 (which runs great but is a rustbucket and pieces fall off of it going down the road) – I gave it to my son to use on his dairy farm as a fencing supplies truck and a calf hauling truck. It will have a nice home, off road, for many useful years to come. Out here we tend to run our rigs til the rust quits holding them together :)

    As my other rig is a 2001 Forester, I don’t have a clunker anymore to trade in – so no, I won’t be doing this. And I can’t see trading in a perfectly good running and paid for older car, for something newer with car payments again. Nope, not going to happen.

  13. All I can say is say goodbye to cheep used cars, why sell it to someone for the $1000 it’s worth, the gov-o-mint will print up another $4500 for you instead.
    I’ve bought 5 old used cars for under $1000 total, 1 for $50, $75, $100, $200, $500, the $500 on wouldn’t qualify for it got 40mpg 1971 VW KG. the $200 on was a 1978 dodge full sized truck got 27mpg,

  14. I think this is a great program, especially since I am in the market for a car and this would get me to buy new…

    BUT, from what I have read it is only for cars 84 and newer. This makes no sense to me. I have an ’82 Volvo that I would love to see crushed and the recycle value of my car is much higher than something made ’84 or newer.

    Therefore I will settle for a used vehicle…

  15. Know what? My 1983 “clunker” may not look pretty but I’ve kept it in pretty good shape. It’s not perfect but it works and is paid for.

    I’ve kept up on any repairs it’s needed and I buy a new set of tires for it every 2-3 years. I’ve got money set aside for any major repairs they may come up, just had a new radiator put in as well as a new set of brakes.

    Granted it likes to over heat on hot days, doesn’t have a fancy CD player, (Or a tv for that matter), takes forever and a day for the heat to kick on in the winter, have to roll down the window on hot summer days first thing you do when you get in, and only costs me $315 for full coverage on that thing every 3 months.

    My kid’s are embarrassed to see me driving it because it’s older than they are. It’s a little rusty in spots, could use a new paint job, but you know what?

    It’s paid for. I don’t owe a cent on that car. It gets me to where I need to go. As of today, it’s lasted me a good, long 9 years. In fact, I plan on keeping it a few more years.

    Right now, with as tight as money is for my family-(were pinching pennies so tight around here they have turned blue from lack of oxygen)-that even if I did magically qualify for the cash for clunkers program there’s no way I could afford the rise in my insurance premiums let alone the car payment on top of that.

    No thank you Mr. President, No thank you!!

  16. My husband was shocked to find out that, per the government website, our 1997 Lumina 3.1 liter engine does not qualify for the program. (After he had been told by a dealer that it did qualify for not only the $3500, but $4500.) My guess is that this does only apply to really old vehicles, and possibly not so old trucks, and guess what!!!…if you have a 1997 Ferrari or Lambhorgini or other expensive sports car, our tax dollars (and our children’s) will pay for you to trade it in!!!
    Also, note of caution: I am extremely suspicious, in light of the mistaken info we were given by the dealer… On a previous new car purchase we were cheated out of a $1000 rebate related to a class-action lawsuit. The salesman told us something which contradicted what we had in writing regarding how we utilize the rebate… we had his assurance that we would get the rebate in the form of a check in a few weeks and never did.
    (which, of course, he later denied telling us)
    Be wary of anything that you do not have specified in writing…wondering how much fraud is going to go on here…

  17. The clunkers website has all the specifics online. Check it out. Depends on the type of the car, how much the fuel economy will be improved, the new car/truck has to get over 18 mpg, and there are age limits on how old the car can be that is traded in. You have to have owned it at least one year prior to the trade in, and it has to drive into the dealer’s lot.

    In addition to the rebate, you should also be getting a trade in allowance of the price that the dealer is getting for the salvage value of the vehicle.

    My company is at the other end of the line – we ae a dismantler taking the clunkers from the dealerships.

  18. Where are all these clunkers going. I know of a few people that cannot afford to buy a car and would love to have one donated to them. We are not all blessed to have the extra money to save and buy an old car even if it only gets 18 miles to the gallon.

  19. @Karen: The “clunkers” have to be destroyed, according to government regulations. You are correct, donating the cars to charitable organizations would make a lot of sense. But getting them out of service is the aim of this program.

  20. It’s a real pity that the /creation/ and /destruction/ of cars are generally far more damaging to the environment than the fuel saved. Even if money is no object and you just want to save the environment, you should buy used.

  21. CAN ANYONE TELL ME WERE THE CARS GO AND IF I CAN BE THE ONE TO RECYCLE THEM (WERE ) DO THEY GO AND WHO GET THE PROFET FOR THE CHOP SHOP ??

  22. The cars have to go to a federally authorized shredder/cruncher/dismantler after the engines are blown up. Absolutely NO parts are allowed to be taken off of them, nor any parts recycled.

  23. Do you have a source on that? I thought that only the engine and powertrain were destroyed; the scrap facility is allowed to sell all other parts until the car is crushed, whcih must be at most 180 days after acquisition.

    The logic in destroying the engine is that it’s the inefficient part, but wasting other parts is just stupid; they’re not necessarily ineffecient.

    As to the comment about new vs used, as has been pointed out before, consider that the $4500 is about what you lose in driving a new car off the lot. So the government subsidy makes it about equivalent to buy a new vs used car in terms of cost to you, if you’re already in need of buying a car. Whether it’s a good idea to use our tax dollars this way, however, I don’t claim to be wise enough to understand. Economics is complicated on the macro level.

  24. Alex – source is the government website.

    Quote: These certifications, which are legally binding on the disposal facility, include a certification that the CARS trade-in vehicle will be crushed or shredded onsite within 180 days of receipt of the vehicle, that all toxic or hazardous components will be removed and properly disposed of prior to crushing or shredding, and that the vehicle will not be transferred to any other disposal facility before it is crushed or shredded.

    Dealer must: Obtain a sworn affidavit from a disposal facility that it has crushed or
    shredded the vehicle, including the engine block, and provide supporting documents
    sufficient to establish that fact.

    CORRECTION:
    I stand corrected here and now tho… looking thru the small print, on page 51 of the 136 page document, it DOES state that: During the six-month period prior to the required crushing or shredding of the trade-in vehicle, the disposal facility may sell any parts of the vehicle other than the engine block or drive train.

    MY APOLOGIES FOR THE MISINFORMAITON: Learned something new today :)
    We were going by the top paragraph, which is the certification given to the dismantlers that states it must be crushed or shredded etc….. There is NO mention in the dismantlers certification papers that parts may be taken!!!
    Therein lies the confusion!

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