The Cash For Clunkers Program Throws A Rod
By Eric Peters, Automotive Columnist
When you give stuff away for free it tends to go away fast. Especially if it’s money you’re giving away for free.
The government, of course, seems not to understand this concept. Perhaps because it is other people’s money it is always giving away.
Last week, the so-called “cash for clunker” program briefly threw a rod — apparently because of the free-for-all ignited by a $1 billion dollar giveaway to finance the program.
It seems there were more takers than anticipated. And the givers (taxpayers by proxy) insufficient to meet the demand. So the government announced late Wednesday evening that it would be “temporarily” suspending the program until it figures out what to do.
Translation: Until it figures out how to find more of your money to give away.
Well, the solution was quickly found. Within 24 hours, the House passed legislation which will fund the Great Clunker Giveaway of 2009 with another $2 billion of your money.
The program — officially titled the Car Allowance Rebate System — provided what amounted to government-provided store credits of between $3,500-$4,500 toward the purchase of a new car if the applicant brought in an old “clunker” for trade-in.
The idea behind it all was to encourage the accelerated retirement of older, low-mileage cars in favor of new, higher mileage ones — in order to encourage fuel-efficiency as well as give a boost to the stultified car industry.
But here’s the catch. Well, the first catch:
The store credits are not like the usual trade-in credit a buyer receives for his old car. Instead of accepting the old car as a trade-in and then re-selling it on the used car lot, the dealership is required to have the traded-in car physically destroyed — and with it, any remaining value it may have had. The “clunker credit” is supposed to compensate the dealer for the loss of the trade-in’s value.
Under the old system, the traded-in car’s value remained in the system until it had no value left — at which point it was typically sent to the crusher for scrap. Under the new system, “clunkers” — many of them with plenty of miles (and value) still left — simply get thrown away.
You — the taxpaying sucker — pay the tab.
To put a finer point on it:
The government forces you to pay taxes so it can throw away your neighbor’s older car and give him $3,500 to $4,500 toward the purchase of a new one.
Isn’t that nice of you?
Second catch:
The program touts all the fuel that will be saved, but how much fuel, really, is saved when a person trades in an 18 mpg “clunker” for a new car that gets 22 mpg? Four mpg, gross, in this example. Ok, but how much energy (most of it oil-sourced) goes into making a brand-new car?
The net savings just got much smaller.
Now factor in the lost value of the crushed “clunker” — including parts that could have been recycled and re-used at much a lower net “energy cost” — and the final value of the whole thing is probably nil as far as efficiency is concerned.
Meanwhile, there’s a rush (temporary) on new cars, since $3,500-$4,500 off the sticker price is a strong inducement for consumers. On the other hand, has it occurred to anyone that a government subsidized new car at $3,500-$4,500 off sticker price is not a “sale”? The government is basically paying people to buy new cars.
What happens when the subsidies dry up?
Looks like we’re about to find out — as the kitty is already running dry.
So naturally, lawmakers are scrambling to find more of your tax money to give away in order to keep the shell game going. Michigan Rep. Candice Miller says “… this is simply the most stimulative (sic) $1 billion the federal government has spent during the entire economic downturn… the government must come up with more money, immediately, to keep this program going.”
Rep. Miller, it should be noted, is a Republican. Weren’t Republicans supposed to be against Robin Hood-style giveaways?
A fine mess you’ve got us into, Ollie!
Other Related Articles
To change the picture next to your comments, sign up at Gravatar.com. Each picture is associated with a particular email address. (This is a third-party service not affiliated with NMA.)
i am really outraged at this on multiple levels i have the opportunity to junk cars for other peoples cars for them and keep some of the money to make my ends meet i can be my saving grace once in a while and i scrap them so they can be recycled currectly i also drive older vehicles anyway im 24 and drive a 1979 k5 blazer everyday i build the truck over five years time and wouldnt give it up for the world and my wife and 3 kids love the truck as much as i do and its not junk its rough but its very dependable and its mine everyone wants to get rid of the old cars that get less mpg and get a new car that gets 4-5 more mpg and a payment higher insurance and more expensive parts when it fails to start on the cold days that the “old clunker” fired right up so get the tax credit and the payment and the higher insurance and the expensive parts go ahead i will keep my clunker that gets 15 mpg that i own and that i gets parts for for cheap at the local junk yard so fine i have no problem with making my truck more eficiant but i will not own a new one for any reason i will ride a bike or walk well i said my piece so if u agree send me an email bmx_master80@msn.com i will be happy to hear your opinion thankx for reading my rant
parry edman jr. It is fine if your 15 mpg vehicle is used for towing or someing else but you do not have all the facts. Gas is cheap now with the recession but when gas goes back to $4.00 or more soon you would actually save money with a new car. For 10,000 miles at $4.00 gas you spend $2666 in just gas. In my car it would be $1000 dollars. That is a $1666 savings on just 10,000 miles. If you drive more than that per year you get greater savings. There is far less maintenance on a new vehicle also. Oil changes can now double to tripple the interval. No ignition parts except plugs every 100,000 miles.
It is fine if you like driving your old beater but financially you are worse off.
@Bill: So it’s ok for the government to throw away half a million cars that are only worth $2000 or $3000? Many of the cars are older cars that have lasted 100,000 miles, sure, but they’ll gladly do another 100,000 – or more. And what of all the parts that could be reused – the most efficient form of recycling?
And randy? The best selling cars are actually the trucks, if you count all variants as the same model. This doesn’t look good for the govt to say, so of course they don’t, but the math speaks for itself.
But I agree Eric, use real numbers. I expected better from the NMA.
James you and others make a lot of things up but that is what I expect from this NMA site which is highly factless. Trucks are not the best sellers and you are wrong! Why is it that Ford announced a high increase in productiion of the Ford Focus and the Escape? They are number one and number two for sold vehicles by Ford on the program ? If you were correct though even though you are not it would still be a benefit to replace a truck with poor mileage with one that gets far better. Parts? The car parts can be used. Only the engine is disabled. Where do you get the 100,000 miles at? That I am sure is not true but if it is the more the better to replace it with a much more fuel efficient vehicle. How many people would be trading in a car for $3500 to $4500 if they are good enough to be able to drive 100,000 miles plus left because if that is the case I would guess their value would be well over $4500 unless they are gas hogs that no one wants.
The only thing I do agree with you is that you should use the real numbers and facts. If you believe you are right then present your facts and sources and not figures out of the air.
James I do not know where you are getting your figures but cars also have different models. The Focus has at least 3 the last time I looks. If you can find exact figures on what individual vehicles were sold on the program then good for you. We all can look at them and judge for ourselves if you are right.
You appear that you don’t even read the laws, Randy. The engine is disabled, but the entire car is required to be recycled as scrap. Really, you do such a poor and thorough job I can’t help but to regard you as a well informed poster pretending to be an extremist – in other words, a troll. Thus I am forced to ignore you and consider anything you type invalid.
So long, troll.
Remind me how many BILLIONS are being wasted on the wars overseas. Remind me how many BILLIONS in debt we have forgiven to other countries.
For the most part, people that are trading in vehicles under the Cluckers program are worth less than $4,500 to begin with. Thus, many of the clukers really don’t have much value. If anything, some non-profits that would normally be getting the cars donated to them are missing out. They are definitely not vehicles with value or miles available to them!
Billions? more like trillions!
Eric Peters writes an article and has no facts. That is ignorant to do. Funny how the Ford Focus was the number one car that was bought on the program. Funny it is rated at 35 mpg and can get a lot better than that. I calculate it to using 1/2 the fuel or even less. You can throw out any false facts you want when writing an article unless someone is there to correct it. Funny how many millions of barrels of oil that would save in a few years.
Let’s see. I forgot that calculating the savings on a Ford Focus would save one to 3 thousand dollars per year in fuel costs depending on gas price and amount of savings in mpg using a 20,000 mile per year average. Guess what that does to improving sales in the US and the increase in jobs and decrease in the trade deficit. That would pay off the $4500 very quickly in added benefits to the US.
Ford Focus no more.
http://www.detroitnews.com/article/20090806/AUTO01/908060349/1148/auto01/Corolla+passes+Focus+for+top+spot+in++clunkers++sales
Ok George you exceeded my statement that this article is poor. The top cars on the list are all high mileage cars. No Nissan in the list and Focus dropped to second because from what I read the dealerships were running out of the Focus.
The article that George had a link to stated that there was a 60+ percent increase in milage average on the new cars. That sounds about right if you include truck sales etc but who knows how the average was calculated because there are multiple ways it could have been done.
Candice Miller’s friend in Lansing, Jennifer Granholm, has no problem raising taxes to pay for Robin Hood-style giveaways.