Listen: There’s no doubt that Cash for Clunkers is a wildly popular program and there are many things we love about it. In principle, getting gas guzzlers off the road in favor of fuel efficient vehicles is a good thing. So is the boost that the struggling auto industry is getting. And for all the people out there taking advantage of the program, getting a new car feels great, and there’s nothing wrong with that (usually).
But there are certain things about the program that bug us and we just can’t shake the feeling that all the hype about Cash for Clunkers amounts to ... irrational exuberance.
Here are the top five things about the Cash for Clunkers program that give us indigestion:
1. It’s Gimmicky. Sure, the program is driving a lot of business, but will it really help the economy in the long run? Many economists say no. Check out this passage from a recent Associated Press story:
“In 2005, for example, General Motors offered a promotion giving shoppers the same discount employees got. That powered sales to record highs. By October, sales were flagging again. ‘Once these clunker rebates expire, it is over,’ said economist Richard Yamarone of Argus Research. ‘Consumers are not going to keep buying cars. It is a temporary one-time gimmick, not a long-lasting tonic for the recovery.’"
2. Mechanics & Used Car Owners Lose. Cash for Clunkers mandates that all cars that are traded in be destroyed. The dealers actually have to pour a solution into the engine that wrecks it, many of which are probably in perfectly good shape. Let’s say you’re one of the countless people that had to keep your clunker because even with the extra $4,500 there’s no way you can afford a new car. Suddenly the transmission on your ’87 Cutlass Supreme (Stock Quote: GM) goes and your mechanic tells you a new tranny will set you back about $2,200. But he says if he can find a used one, he can do it for $800. So he calls around all the local junk yards but no one’s got the tranny, because all of the old Cutlass Supremes have been traded in and clunkified.
3. Who Are We Really Helping? A lot of the people who are trading in their clunkers for new wheels are people who were in the market for a new car anyway. They’d have probably bought one in the next year anyway, but Cash For Clunkers proved to be an irresistible incentive to pull the trigger now. Check out this tidbit, also courtesy of the AP:
“Mike Ward, an attorney from rural eastern Virginia, had no plans to replace his 1995 Ford Explorer, known to his family as the 'dog car' because they used it to drive their dogs around. But repairs were adding up, so Ward drove the 80 miles to a Lexus dealership and bought a midsize SUV for $40,000 after discounts. ‘I was on the fence until I learned the money was running out,’ he said.
4. Efficiency Shmefficiency. Cash for Clunkers mandates that all trade-ins must get no more than 18 miles per gallon to qualify, and in order to get the $3,500 discount, the new car must get at least 4 mpg better than the clunker (if you get 10 mpg better then you’ve won $4,500 back). Seems to us that a measly 4 mpg is pretty damn charitable and frankly doesn’t provide much of an incentive to buy really fuel efficient cars (worse yet… just a 2 mpg improvement is needed if you’re buying a new pick-up truck or SUV). You know what gets slightly more than the 22 miles per gallon needed to qualify? A 2009 Ford Ranger pick-up (Stock Quote: F). So you could trade in your old incredibly inefficient truck for a new relatively inefficient truck. The point is that if we’re putting up this kind of cash, shouldn’t we be making sure that people buy REALLY efficient cars? Shouldn’t the minimum fuel efficiency for the new cars be more like 25 or even 30 mpg? According to this WSJ post, the environmental impact of the program as is will be pretty negligible:
“…an analysis of the real impact of the clunkers program on U.S. oil consumption paints a much more modest picture: Even if extended, the program will shave U.S. oil consumption by about 0.05%, or roughly 5,000 barrels a day out of U.S. daily consumption of 9 million barrels.”
5. How Are We Paying For This Exactly? Congress has allocated an extra $2 billion to make sure that we keep junking our clunkers in favor of new cars, but guess where that money is coming from. According to Cnet.com, the cash was originally meant for a popular environmental program:
“…the additional $2 billion in funding to extend the program would come from a loan guarantee program for deploying renewable energy projects, such as solar and wind farms. In the current financially constrained funding environment, renewable energy company executives say that the Department of Energy loan guarantee program is very effective.”
So instead of wind and solar energy, we’re funding 20 mpg pick-up trucks? Really?
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