(AP Photo/Matt Rourke)
What is the Cash for Clunkers program?
The cash for clunkers program provides consumers economic incentives to purchase a new, more fuel efficient vehicle in exchange for trading in their less fuel efficient vehicle. The program is intended to stimulate the economy by boosting auto sales and putting safer, cleaner and more fuel efficient vehicles on the nation's roads. The amount of credit is either $3,500 or $4,500 and is given in the form of a voucher. The voucher amount is determined by the type of car purchased and the difference in fuel economy between the new vehicle and the clunker. Dealerships reduce the purchase price by the voucher amount the consumer is eligible for and receive a reimbursement from the government.
To be eligible vehicles must meet all the below criteria:
1. Vehicle must be less than 25 years old.
2. Consumer must purchase or sign a minimum 5 year lease of a NEW vehicle.
3. Trade-in vehicles must get a weighted combined average rating of 18 or fewer MPG
4. Trade-in vehicles must be registered and insured continuously for the full year preceding the trade- in.
5. Trade-in vehicles must be in drivable condition.
6. Vehicles must be purchased from July 1st, 2009 until Nov. 1st, 2009 or when the funds are exhausted, whichever comes first.
7. The program requires the scrapping of the eligible trade-in vehicle and that the dealer disclose to the customer an estimate of the scrap value of the trade-in. The scrap value will be in addition to the rebate, and not in place of the rebate.
8. The new car bought under the plan must have a suggested retail price no more than $45,000, and for passenger automobiles, the new vehicle must have a combined fuel economy value of at least 22 miles per gallon.
FAQ's
Can you purchase foreign cars? YES
Can you purchase used cars? NO
Is the program available at all dealerships? NO, dealers must opt into the program
Is the voucher tax-free? YES
What happens to my clunker? It is the dealerships responsibility to see that the car's engine and drive-train be destroyed.
Are there clunker restrictions? The car cannot be older than 25 years.
What if my trade-in is worth more than $4500? Then I suggest you don't take advantage of this program.
How do I know if my car qualifies? Visit www.fueleconomy.gov to calculate your MPG
History
Economist Alan Blinder first introduced the premise, and catchphrase “Cash for Clunkers” in his New York Times op-ed piece; “A Modest Proposal: Eco-Friendly Stimulus”. Touting the program as “the best stimulus idea you've never heard of”. He proposed Cash for Clunkers would provide an effective economic stimulus, more equal income distribution and a cleaner environment. It wasn't until nearly a year later that the bill was introduced by Rep. Betty Sutton – D, OH, on March 17th, 2009. By June 24th the bill was passed with a $1 billion price tag, the program was to begin on July 24th and end Sept. 1st. Within a week funds had been exhausted and congress went in to discuss pumping more money into the program. On August 6th, 2009 congress passed a bill to allocate $2 billion to continue the program through September 1st 2009 or when funds run out, which ever happened first. (Track the bill here: govtrack.us)
Cost and Benefit
The Obama administration and the auto industry were caught off guard by the popularity of the Cash for Clunkers program. Consumers flocked to participating dealerships to trade in their clunkers for a new car, blowing through the allocated $1 billion. Congress decided to put in another $2 billion to continue the program through Sept. 1st. On paper this looks like a great success, both the government and the auto industry are saying so as well. If I spent $3 billion (plus interest) in tax payers money I probably would do whatever I could to show it was a success as well. Seeing as though some of the $3 billion is coming out of my pocket, I wanted to make sure they weren't telling fibs. Here's what I found:
Cost at $1 Billion Cap
According to Edmonds.com, 200,000 cars worth $4500 or less are generally retired every three months without this program in place. The Cash for Clunkers program would at best fund 250,000 cars in the same time frame at a $1 billion cap. The government only added incremental sales to the economy. Eventually those sales would have happened at some point, so we just moved our future sales into a smaller window, giving the illusion of a short term economic stimulation. The result is that the government spent $1 billion to gain 50,000 incremental sales from the program. The cost to tax payers per car comes out to $20,000 ($1,000,000,000 / 50,000).
Let's do the math with the total Cash For Clunkers cost of $3 billion
Assuming the government average rebate is $4000: $3,000,000,000/$4000 = 750,000 available Cash for Clunker cars. Take away the 200,000 cars that would be retired regardless of the program. The potential incremental sales jump to 550,000. The cost to tax payers decreases to $5454 per car. That looks a little better. Are we going to sell the extra 500,000 new cars between now and Sept. 1st? I don't know, it would be great if we did. The program still fails at creating a long term benefit to the economy. Once all eligible clunkers are traded in for new cars, more money needs to be pumped in again, and no jobs are saved or created. At the end of the day, we are just transferring one taxpayer's money to another.
Can the new car buyers afford their new rides?
Based on my 2002 car
Car Payment: $0.00
Insurance: $87.50 a month
Gas once a week: $40 / $160 month
Oil Change every 3 months: $30 / $10 a month
Monthly Total: $257.50
Based on 2009 Toyota Corolla (number one Cash for Clunkers seller)
Car Payment: $275.14 a month (60 Months calculated on edmonds.com)
Insurance: will be doubled for a new car $175 a month
Gas once a week: $31.25 a week / $125 a month
Oil Change every 3 months: $30 / $10 a month
Monthly Total: $585.14
The new car will cost the consumer double what their old car cost a month. The majority of people I know that drive eligible clunkers, are driving them for a reason, they can't afford anything better. Is Cash For Clunkers creating the auto industry version of the housing crisis? Several dealerships have started special financing plans to encourage even more showroom traffic. When the economic bubble crashes I think we'll see several cars getting repossessed. That is going to hurt auto financing companies like GMAC, who may be feeling pressure by dealerships to approve car loans for people who can't afford them.
"Your ego is writing checks that this country can't cash." - Top Gun
The initial funding for the Cash for Clunkers program was attached to a $106 billion war funding bill, of which $1 billion was set aside for the program. Since then an extra $2 billion has been added to the program. Last I heard our country was in debt. We are trying to stimulate our economy with borrowed money, either by printing more further diminishing the dollar or borrowing it from the Chinese whom we already owe $722 billion USD.
What regulations are in place to prevent fraud?
The NHTSA is in charge of enforcing the regulations to prevent dealerships from falsifying sales. Car dealers must provide proof that they killed the engine and scrapped the car before the government will grant them the rebate. The problem is they are retiring cars which are in perfectly good working condition, which lower income families could buy. Most likely the cars people are retiring under Cash for Clunkers are safer and more environmentally friendly than what the lower income families are currently driving. The program hurts the poor and the used car industry in one fell swoop. The other problem that has come up is the website in which the car dealers report their sales and deliver proof of car extinction keeps crashing preventing dealerships to report accurate numbers. It's being reported that both the government nor the dealerships know how much has really been spent from the original $1 billion or how much was really needed to keep the program alive. We are possibly facing two dire scenarios, either the extra $2 billion wasn't needed or car dealers have blown through the full $3 billion and there won't be enough in the fund to pay out all deals. The car dealerships have gotten so nervous, some are making clauses in the contracts stating if the government does not pay off the rebate, the consumer must pay that money back. We could see a lot of litigation coming out of this at the end of the day.
Return customers stimulate the economy, not one time buyers.
Once the extra $2 billion has been spent the Cash for Clunkers program is over, people will not continue buying cars at this rate. To stimulate the auto industry successfully we need a steady flow of consumers, or the jobs will disappear again, dealerships will be failing and finance companies will be back to square one. This program is a temporary band-aid. if you look closely at the math, it really isn't stimulating the economy as much as the government would like us to think. We need a long term plan that will put our auto workers back in a job.
Humanity seems to be going through an adolescence; destroying the environment, thinking we can get out of recession by consuming more instead of saving more, upsetting the balance of nature by over hunting and deforestation, we're a mess! I always like to say we are just borrowing our earth from our children. Boy are they going to be upset when they inherit this mess! We need to turn this around and smarten up.
More Information: Official site: www.cars.gov
Follow me on twitter: @lajournalist My Homepage: LA Buzz
Comments
Well written. I wonder how many tax payers have not considered where this money is coming from. Not from the folks buying a lot of these cars. When is enough enough
This writer makes so many assumptions, she winds-up only half right. My wife and I considered replacing out 2003 Honda van with a new AWD/4WD, but the cost analysis (this is the part where the writer is correct) did not justify the expense. Factor in $3500 for our 1991 Mitsubishi Montero (maybe $300-400 actual trade-in value), and the ecomonics changed. A ride for the needy? Hardly, with 200K on the odometer, a cracked windshield, on its third engine, and the "Check Engine" light appeared on a regular basis; the repairs on this vehicle would literally have driven someone "on the edge" directly into poverty. Reviewing the Clunkers on Dealer row, it appeared the vast majority of vehicles were in similar condition.
I'll pay you $4500 to so we can throw away $3000. That is what the government is saying. Throw away your car that is worth $3000 and we will give you $4500. Stated a different way, the government is paying to throw away money. $3 billion of the citizens tax dollars are spending $7500 for each 3 MPH gained. Throwing away value never makes sense, but that is what the government is doing with the clunker. Instead of trying to recoup some tax dollars to make being 3 mph more environmentally friendly worth it, we are melting the cars with value down.
This is a $3 billion auto company bailout.
The problems: Like the writer says, people with clunkers have clunkers for a reason. Also, a lease means you give the car back, with whatever value it has in it. In 5 years, the auto companies will win again, because the auto companies with get back the leased cars in 5 years. Leaving those people with nothing to trade in and no car.
tocatchasenator.blogspot.com
tHE PROBLEM IS THAT THEY STARTED THIS PROGRAM AFTER 2 OF THE MAJOR CAR MANUFACTURERS JUST WENT THRU BANKRUPTCY, THEREFORE THEY HAD FACTORIES SHUT DOWN FOR 3-4 MONTHS NOW THEY ARE ON THE OUTSIDE LOOKING IN BECAUSE THEY DONT HAVE THE INVENTORY TO COMPETE WITH THE OTHER MANUFACTURERS. AS FAR AS THE BANKS THEY ARE SITTING ON THEIR HANDS AND NOT LOANING MONEY EVEN WITH FOLKS WITH GOOD CREDIT. IT SEEMS THE BANKS THINK THEY ARE IN THE CAR BUSINESSHOWEVER THEY SHOULD JUST STICK TO LOANING MONEY AND CHARGING US THOSE OUTRAGEOUS FINANCE RATES.
Nobody is working and paying taxes. Don't you reckon if we had some folks working they might spend a little money and get somebody else working. This program put thousands of people working RIGHT NOW. We have had 28 years of the government is the problem and it has given us the greatest depression since the thirties. This article does not consider the poor are suffering and need some faith in the system and cash in the pocket to get thing moving again, so the rich can take it away again.
Hi everyone, thank you for posting your opinions. Whether you agree with me or not, an intelligent conversation is what I strive for amongst my readers and I value your opinions. Please note I have seen some comments attacking posters and myself. These will be deleted as they are not helpful in discussing this issue. Carry on!
Great article. The 200,000 cars that are "retired anyway" is an interesting thing to bring in to the discussion. The fact that the cars are supposed to be drivable means that they are supposed to be scrapped prematurely. Later you address this as a problem for the poor who could have driven these cars. I would agree. Something that wasn't mentioned is the fuel economy. A large part of the energy an new car requires is used before the car is ever driven. Making new cars is energy intensive roughly half the energy that will ever go into the tank. It seems we consume our energy and our natural and physical wealth just to creep deeper and deeper in debt. The cars scrapped are real wealth and because of intended obsolescence consumers pay too much to fix and maintain this wealth so they can consume and borrow again. Its a racket based on the idea that we can just gather up more of natures bounty.
In your example, the 6 year old car would typical require a thousand dollars or so of repairs every year or so (alternator, clutch, transmission, leaky seals, etc...).
And BTW,
"The cost to tax payers per car comes out to $20,000 ($1,000,000,000 / 50,000)"
Even if one excepted this math, the cost per tax payer
(193.3 million people in 2007) would be about $5.17,
basically the cost of a beer or two. For that we get a
much needed boost to the economy. As the economy improves with these intelligent non-partisan programs, all boats rise, to more then defray the trivial cost per person.
So, the author of this article has a very odd agenda to trash an obvious win-win program. Does she want America to fail? Thanks.
I can assure you I do not want my country to fail. I love my country deeply and want nothing more than it to succeed and continue being the best country in the world. I'd also like to point out I am a supporter of Obama and voted for him in this election, and think for the most part, he has done a great job in his presidency thus far. I just don't take everything he does as the gospel and will challenge anything I feel could harm my country. Cash for Clunkers isn't a good idea. Wait a year and you will see the consequences.
I read the article and thought it was well written. Then I read some of the comments and had to read the article again. Still think it is well written.
Eric: 136 million tax returns are filed in the U S a year, of those 91 million pay ZERO taxes. My ten year old car does not cost me a grand a year. The math is right on or possibly underestimates cost to tax payers.
Odd agenda Eric? The writer obviously intended to inform and and appears to have no other agenda. "Win-Win to whom? Certainly not those of us paying the bills. I'm not one of the 91 million.
Harold, Harold, Harold Look around you. How many of your neighbors are not working? How many of those that work have taken advantage of this wreck of a program? I suspect many of your neighbors are working and few if any have new cars program or not.
The author of this program can point to absolutely not one new job greated by this program. Ask you congressman if the program created jobs.
Chuck (again)
David, you say the writer makes assumptions then proceed to agree with her on the only point you publish. What's that about? Maybe you missed something. I suggest you read the article again.
By the way my ten year old car would be valued by many of those folks trying to buy a car they can't afford under this program.
Well from my experience, I haven't purchased a new car since well EVER, I've always purchased used, ex coporate cars. Between myself and my family we've owned 9 corporate cars, we could purchase them for 3,500 when they had 100,000 miles on them, then we maintained them and sold them when they hit 250+ (last one had 321,000) all have been Ford Taurus - with a 3.0 engine, VERY WELL BUILT MOTOR, tranny is a different thing. It has never been smart to take a depreciation hit of several thousand dollars just to have a new car. This is why I think this program is not for me. It doesn't beniefit me any better than what I'm currently doing. The deals are out there, you just have to look.
I beleive this new legislation is a big win for consumers who is ready to buy a new car with fuel efficient models
Jimhenry
www.cashforclunkersfacts.info
The assumption that these were "future deals" is way off base. I would not have ever bought a New Car as a second car. But if you are gonna give me $4500 for my $500 car, plus the car I bought had another $3000 in rebates and I sill dealt with dealer to get more off the price. It was a once in a lifetime deal, that I would have never done if not for the clunker bill.
At the conculusion of a CARS deal, participants fill out a short, three question survey for the government. The first question is (paraphrasing), "Without CARS, would you have bought a new car?" From casaual, unscientific discussions with car salespeople, the "No" answer is running >80%. Using this information (wild assumptions work both ways), the incremental sales are 200,000 units (250,000 x 80%) or $5000/new vehicle for the first billion and less for the rest, not the sensationalist $20,000/vehicle. We will have a preview of this when the August new vehicle sales are released and can be compared on a seasonally adjusted year-over-year basis. Presumably the government will someday release the results of the three question survey, and we will have the definitive answer for the success of CARS. (at least as the CARS Bill is intended as an automotive jobs program).
One advantage of the CARS program is that 100% of the money, however it is sliced-up, is injected into the economy
The big car dealers in West Texas have stopped taking in Clunkers because the Government has not paid them for the deals that have been made. They told me they would start back after they were paid. What is our government doing with the promised funds they did not have to start with. Taking them from me and my employees pocket?
This program seems to assume that it requires no energy to make a new car! How many miles do you have to drive this new car with better gas mileage to just break even on the energy it takes to make it? When we American "wake up" to this wasteful taxpayer scam? Destroy old cars the are in perfectly good working order, how much energy do it take to make it in the first place and then trash it for know good reason makes no sense to me.
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