Cash for Clunkers: Disappointing success or rousing failure?

You’ve no doubt heard by now that the Car Allowance Rebate System, a federal program offering incentives for people to trade in their old cars, is apparently running out of money.

There are two ways of looking at this, depending on whether you’re a glass-half-full type of person. The intention of the program was to get gas-guzzling and polluting older cars off the road and help boost sales for struggling car manufacturers. At $3,500-$4,500 a pop, the $1 billion budgeted for the program should have subsidized the sale of as many as 285,000 cars in one week (not allowing for administrative costs etc.).

Americans typically buy about 10 million cars a year, a number that averages to 192,000 a week, but varies seasonally. So presumably we’ll see a spike in auto sales this month, though not necessarily a staggering one.

Clearly, the program is working. Maybe too well.

Now the question is whether the government should continue to provide the subsidies. Rep. Ed Markey, D-Mass., vowed to continue the program until 1 million cars were taken off the road. By my calculation, they’ll need at least another $3 billion to pay for that. Where’s that money going to come from?

Rep. Fred Upton, R-Mich., says the program can be funded with the “unspent stimulus dollars that are gathering dust.” It’s good to know that the government has big piles of cash lying around, or perhaps stashed in clandestine locations throughout Congressional office buildings, that they have absolutely no idea how to spend.

So, what’s the objective? Is it to curb energy consumption and fight pollution? If so, are there better ways to spend that money toward that goal?

  • Jason

    I suggest authorizing another $1B, but increase the efficiency requirements by 50-100%. When that money is gone, do it again. This program is already encouraging ridiculous consumption, might as well try to shape that and encourage vehicle downsizing.

  • Not all of the vehicle sales under the CARS program is “downsizing,” Jason. While the MPG requirement for cars accomplishes this goal, the gap between “clunker” mpg and new vehicle mpg is much smaller in the truck category.

    Thus, a Minnesota farmer with a old pickup could quallify for a CARS check toward purchase of a new pickup that gets only slightly better miles per gallon.

    That said, I think the program was a success. I wish it had some provistions to help the “working poor” buy a better, more fuel efficent USED vehicle. The group pays the highest % of their income on fuel and energy, yet can’t afford a new vehicle, even with the CARS offer of $4,500.

  • As one of the six Toyota buyers in the Twin Cities to get a voucher (so my dealer tells me), I’d make a few suggestions.

    Yes, increase efficiency, as Jason noted. The piddly truck requirement (+2 mpg) is there just to move the beasts off the lot.

    I think the program is profoundly unfair to people who bought efficient cars 10-25 years ago. (BTW, our ’93 Ford Explorer was given to us by my grandma-in-law. Don’t even ask why an 80-year-old bought that car in the first place.)

    Simply, I would extend the 10+ mpg rule to ANY “trade-up.” Give someone who owns a 25 mpg car a voucher for going to 35 mpg. (This would really limit the field – lots of folks would buy Priuses, which were in high demand without C4C — but still, if one goal is environmental, +10 mpg is +10 mpg no matter how you get it.)

    I would more steeply rake the voucher structure. Instead of the $3500/$4500 standard, reduce the voucher rate for the lower mpg gainers and make it harder to get the $4500. The program is popular enough to do that and not hurt sales much, I suspect.

    I’d love to figure out a way to extend the program to used cars, on a lower level. I’d love to give someone willing to junk a 15 mpg guzzler for a 30+ car some sort of a spiff – that way, we get more crap-masters off the road. And that’s likely to benefit us long-term more than the immediate C4C boost.

    Of course, a lot of those cars will fail their way out of circulation anyway, so slicker minds will have to adjust the details appropriately.

    I would also cannibalize some other part of the stimulus for C4C, so that the net stimulus cost doesn’t rise.

  • The piddly truck requirement (+2 mpg) is there just to move the beasts off the lot.

    Not necessarily – keep in mind that the lower the initial mileage, the greater the impact from small increases in mileage.

    If I’ve got a pickup that gets 10 mpg, and I drive it 12,000 miles per year, I’ll burn 1,200 gallons of gas that year.

    If I trade for a newer pickup that gets 12 mpg, I’ll use 1,000 gallons of gas, a net savings of 200 gallons.

    Now, suppose I’ve got a car that gets 20 mpg. Driving 12,000 miles burns 600 gallons per year. In order to save the same 200 gallons of fuel, I’d need to trade up for a car that gets 30 mpg (12,000 miles/30 mpg = 400 gallons).

    In other words, for pickups, a 20% increase in fuel economy nets the same savings as a 50% increase for a car.

  • “I would also cannibalize some other part of the stimulus for C4C”

    Thanks a lot, David. There goes Circle Pines’ dream of a new federal salmon hatchery (g).

    I agree with your comment. Good points, all.

    In addition to gasoline-hybrids like the Prius you bought, there are other “green” vehicles out there that could use a boost, including electric vehicles, CNG & propane powered vehicles, new clean diesels (bonus if they use biodiesel) and flex fuel vehicles like the one I drive at work that actually runs on E85 (we NEVER use reg. unleaded).

  • bob

    It would seem to me that the program is a big plus from both the environmental and the boosting-the-economy perspective. So yes, let’s keep the program going. I’d like to take advantage of it myself.

    It was a huge oversight to not include fuel-efficient, late-model used cars in the program.

    Also, I think even Homer Simpson could have predicted that this program would be popular, given how kablooied our economy is. So, shame on Congress for not anticipating the high demand and funding it accordingly.

  • Breaking: the Obama Administration and several House members are proposing that 2 billion in addional funding to continue the CARS program.

    Sen. Dianne Feinstein has threaten to block any additional funding in the Senate unless the program’s fuel eficiency requirements are toughened.

  • Elizabeth T

    Success: apparently yes

    Disappointing: apparently yes

    the above points sum it up pretty well. The rich – who can more easily afford to buy a new car – get the benefits. I can’t afford to buy a new car at all, regardless of my current mpg and regardless of $3000. Can I buy a VW Jetta diesel (the only diesel-fueled car currently capable of passing California’s emission standards, 40mpg highway) for $3k? no. They’re about $26k.

    This does nothing to reduce our reliance on petroleum based fuel. In fact, it encourages us to continue to buy it, rather than switch to other engine types or mass transit. If the people don’t feel the pain, they won’t change their behavior.

    And … what does more for the economy? Me buying a car outright, or me paying interest to some blood-sucking financial institution? I replaced my ’99 VW with an ’00 VW in January. Yes, I bought an 8 year old car. I was stuck with the insurance check from the ditz who totaled my 30 mpg car. Know what? you can’t get much for $5k.

    Never the less, My money is currently going to pay for food, clothes, school, etc. Where is it going? Into our lagging economy. Where is the money going for all of these people buying new cars? Into the blood-sucking money lending agencies, who sure as hell aren’t putting it back into the economy.

    Where is this $3000 coming from? Our taxes. Which are being paid by everyone. I would rather pay for your unemployment benefits to be extended another week rather than for you to buy a new car. The government couldn’t find something useful to do with my tax dollars? Like extend unemployment benefits or pay COBRA?

    This rebate is superficial, feel-good legislation that lets us pretend our problems are being fixed.

  • ABC

    The $8000 homebuyer tax rebate is roughly a 5% or less incentive. The cash for clunkers is roughly a 20% incentive. Early on, $3500 to $4500 seemed more generous than necessary to accomplish the stated goals. The speed with which the program exhausted its funding appears to support that feeling.

    Regarding the homebuyer rebate, a relative bought their first home in May. At the time the $8000 tax rebate was to be sent out in 6 to 8 weeks. After 8 weeks that relative has been told the tax rebate could take another 3 or 4 months. In the meantime, congress is working on lifting the “first time homebuyer” restriction for 2010 and increasing the rebate to $15000. The message being: don’t spend money now, wait for a better deal.

  • Alison

    This program seemed foolish to me for the same reason I think the cash for guns programs are foolish. It only makes sense if you don’t make more cars.

    Do we need to cut emissions? Of course.

    Do we need to stimulate the economy? Of course.

    Do we need to figure out how to turn a profit in the car companies we now own? Of course.

    Is this really the solution to these problems? Probably not. These problems all have better individual solutions than this ‘kill all the birds with one stone’ approach.

    And oh yeah, I love this part:

    “unspent stimulus dollars that are gathering dust.”

    Would that be the piles of cash we’ll have to borrow and pay back with interest? Wouldn’t it be better to not do that if we don’t need to?

  • JackU

    Elizabeth T:

    I don’t understand this statement:

    “Where is the money going for all of these people buying new cars? Into the blood-sucking money lending agencies, who sure as hell aren’t putting it back into the economy.”

    When I borrowed money to buy my last car it was so that the car company could be paid in full for the vehicle. That money goes into the economy just like what gets paid for “food, clothes, school, etc.” Sure the lender gets interest (or if you get it financed by the car companies maybe not) but that keeps their employees employed too.

  • Joe Radosevich

    I understand and support some of the goals of the C4C program but it should never have been authorized.

    At a time when transit agencies serving 22 Million Americans are strapped for cash, we are helping 250,000 well-off people buy new cars.

    Our country needs to move decisively toward better transit and regional planning to combat our dependance on oil and other limited natural resources. The C4C program is bad for cities, general health, and long-term planning. We should be encouraging more walking, biking, and transit use–not new cars.

    I know this position is a bit out of the mainstream, but we’re also talking about a federal rebate program that’s sending $3 billion into encouraging a particular lifestyle. Car buying, of any type, should never receive any federal or state incentives. People do not need to be encouraged here, we should focus our efforts on increased transit and non-motorized transportation.

    Think about what $3 billion could have done for transit in American cities. It could leverage funding to build six light rail projects like the central corridor, or 24 commuter rail lines like the Northstar! That would do much more to limit emissions, reduce congestion, and improve the health and safety of millions of Americans.

  • kennedy

    Funding this program encourages citizens to take on debt by buying a new vehicle. Isn’t one of our national problems the low savings rate? A program that encourages us to spend money on a depreciating asset (a new vehicle) is a bad idea. Much better to fund programs that encourage energy efficiency upgrades to permanent property (homes & buildings).

  • Brian

    Imagine if there were a hardware store that was struggling in the recession. You go and buy it, and try to turn it around. To get business stimulated, you go out and advertise that hammers now cost just 5 dollars. Then, you go out and borrow the money to cover the cost between the quarter, and the 11.99 or whatever the hammer cost — you know to be viable. After every hammer purchase, you put the borrowed 6.99 into the register. You then tell your workers that the sale was soooo “SUCCESSFUL” that your sales went up 200%! However, your hardware store is now out of business because you didn’t make a cent of profit and owe a bunch of money plus interest. This is unnacceptable in real life yet the government gets away with it daily and claims it a success? The fact that they have the tax payers footing the bill is not an excuse.

    I agree with kennedy’s comment that this program is an example of encouraging poor buying decisions via enticement. It’s a smaller version of the community reinvestment act which started this whole mess in the first place: Government mandating low interest rates to underqualified buyers (at the guaruntee of tax payer bailout via federal funding). When the banks quit getting their money, we now need more money to subsidize poor private spending decisions (bail out) at the hands of (though not blameless) lending companies and government mandates. The saddest thing is that this billion for the Cash for Clunkers program is merely a drop in the proverbial bucket when it comes to the 8.5 trillion dollar bailout. This is 2/3rds of the national debt! For instance, the taxpayer tab on INTEREST ALONE for our current national debt is around 400 billion dollars. These are real dollars that will need to be accounted for from somewhere. Imagine a thousand dollar bill. Now imagine a stack of thousand dollar bills that is 67 miles high. That’s a trillion.

    I do not see this as a “success”, regardless if we’re getting greener cars as a result of it. If you advertise giving away 4500 dollars, it’s not rocket science that people will line up to take it.