Cash for Clunkers Surprises its Critics

Posted by: David Welch on July 31, 2009

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Okay, I have to admit that the government’s Cash for Clunkers program worked better than I expected. With the program running low on cash right out of the gate—and Michigan lawmakers requesting $2 billion on top of the original $1 billion that is all but spent—plenty of dealers and analysts are surprised at how fast it worked. The law’s critics, including me, figured it had been hammered into mediocrity like so many pieces of legislation in Washington. I wrote that the program was lousy legislation in this magazine story. I still don’t think it was a great bill for improving fuel economy. And the sales boost will be short-lived without more money. But the program has worked.

Why has it been so popular? For starters, the government made some changes between the time it was passed and when the feds rolled it out. Some cars didn’t qualify under the original legislation because the mileage rating as calculated by the government was too high. You had to trade in a car that got 18 mpg or worse to get the money. But there was a problem. After 2007, the government changed how they calculate fuel economy ratings for every model in order to match real-world driving. Before that, the government’s mileage rating for most models was unrealistically high and consumers griped that they didn’t get that kind of mileage out on the road. So the government decided at the 11th hour to apply the new rating system to older models, thus lowering the mileage rating and making them eligible for a scrappage check. That helped. Some older models and even minivans that wouldn’t have qualified under the original proposal could be scrapped to get cash for a new car once the program started.

Another assumption made by analysts at IHS Global Insight and Edmunds.com was that people owning old cars worth less than $3,500 aren’t in the new-car market. They bought used cars and will do so again. They may not even have credit to get financed for a new-car purchase. And for many people driving those older cars, that’s the case. But in many other cases, dealers told me, families with good credit have their teenage or college kids driving the old beater. So they are trading it in for a new model.

And last, there’s just good old-fashioned buzz. As long as banks, carmakers and Wall Street are getting bailout money, a lot of consumers figured they’d go and see if they could get their government cheese from Uncle Sam, too. So the program generated showroom traffic and got people shopping.

I do stand by the key points from my original column. One, it is a great bill for selling new pickup trucks, which hardly greens the planet as its proponents originally stated. And my bigger point was that the program was grossly underfunded. It was. We’ll only get about a 2.5% sales increase for the year if the House and Senate don’t approve more cash. That’s in the works as we speak. The House of Representatives approved another $2 billion today. It will be a tougher sell in the Senate, according to sources on Capitol Hill. But it could be approved next week. If so, it could boost sales by 7% to 8% for the year. That will help ailing carmakers. If not, the Clunbker bill’s success will be short lived.

Reader Comments

Joe Salesman

July 31, 2009 1:32 PM

I have to disagree with your thought that its great for selling new pickup trucks. Although we have sold a few new pickups during the program..95% of all of my dealerships C4C sales have been on Focus, 4 Cyl Fusions , and 4 Cyl Milans.

Lynn Grenier

July 31, 2009 1:33 PM

I agree that it's a great bill for selling new pickup trucks - just what the planet needs - but what I'd really like to know is, why are people who drive gas-guzzling oinkers getting a reward, while people like myself who've been driving fuel efficient (better than 30 mpg) cars for the last 30 years getting nothing?

Tom Mariner

July 31, 2009 1:37 PM

"We will have to cut services to afford healthcare" is a myth. If we can dig up Billions to pay for this "Cash for Clunkers" insanity, we have enough to pay for a personal physician for each of us. As long it is not Michael Jackson's doctor, that would make me happy.

Greg Johnson

July 31, 2009 3:24 PM

David,

Still a bad and dumb idea! How much more are we going to do for the 2/3's of an Industry that could not build cars people wanted. Could not beat Toyota, so why not give the dealers a 25% bonus to dicker with the car buyer! Its only $1 Billion here, than $3 Billion there. This administration has not found a problem yet they could not drown in money. Why do the two Industries who created the financial crash get our cash to bail them out. And at least three Wall Street firms are still paying out bonuses that EXCEED their profit. Duh! Wake up taxpayers, we is the bank! Greg J.

Ronald Mason

July 31, 2009 3:35 PM

These people in Congress are NUTS! Just where do they plan on getting this two BILLION dollars? There is no cash in a savings account, just more DEBT! Hell, why not add ten BILLION more money? I got a better idea, just pay 100% for the new cars since these people in Congress and the White House have no idea what a budget even means, let alone how to follow one.

Ronald Mason

July 31, 2009 3:35 PM

These people in Congress are NUTS! Just where do they plan on getting this two BILLION dollars? There is no cash in a savings account, just more DEBT! Hell, why not add ten BILLION more money? I got a better idea, just pay 100% for the new cars since these people in Congress and the White House have no idea what a budget even means, let alone how to follow one.

Bob Wolfe

July 31, 2009 3:45 PM

Hooray for the cash for the clunkers energy conservation incentive. My banker got a car loan out of me, my car dealer got a sale, I got a more energy efficient vehicle. One of the first things I did was put an Obama bumper sticker on it.

Kinsley Bingham

July 31, 2009 3:58 PM

Lynn - Your having driven a fuel efficient vehicle for 30 years has saved you a lot of money and essentially reduced your tax burden as taxes are included in the cost of a gallon of gas.

People that drive fuel inefficient clunkers have been contributing a lot more to the tax system which means they are paying for more of the infrastructure, defense spending, and school funding that you have benefitted from over the past 30 years.

You should be thanking the folks driving the clunkers around all this time.

Meanwhile, we can all get prepared for gasoline "vice taxes" to be increased steadily to ensure that the money keeps flowing, as needed, to the government to fund these types of programs.

:)

Devin

July 31, 2009 4:38 PM

Its not about politics, so quit crying "where's mine". Its about getting old inefficient automobiles of the road, while helping real people and boosting the car industry (our car industry). Also, where does the money come from? Debt indeed. But the government is getting a profit on the money lent to the banks and has to figure out what to do with it. These moves have indirect benefits. Look past the trees.

Nanoman

July 31, 2009 5:37 PM

In 2008, there were on average 1.1 billion cars sold per month. One billion dollars spent with zero overhead allows for 250,000 CARS transactions. This is about one weeks worth of 2008 car sales. I see no reason for surprise as expressed in the headline. This program is a political bone for Michigan delegates and union labor. As most folks know, however, when you throw bones to an old dog even once, they will be back begging even if they were too slow to catch the one you already threw them.

Canadian

August 1, 2009 6:01 AM

Stupidity! This will just shift some vehicle sales forward in the calendar and leave a void later on. Why should Joe taxpayer be bilked out of more money to move around the deck chairs. When government gets involved in skewing (screwing) the marketplace, the distortion ALWAYS has a price tag.

KANI

August 1, 2009 12:02 PM

The program is good, ONLY when it is for American made cars (at least 90% to 99%) inputs made in the US, irrespective of brand names). Otherwise it does not make any sense. It will help to generate or sustain American jobs, at least partly. As long as wealth is created and used in the US, everything makes sense. Distractors and detractors opinions deserve nothing but dustbins.

The Mad Hedge Fund Trader

August 1, 2009 4:46 PM

Perhaps it was the newspaper gene in me that made me screech my car to a halt when I saw a near riot in progress at my local total Toyota dealer. The showroom was more jammed than the unemployment office, with eager salesmen recalled from vacations manning card tables set up in every available space. I managed to grab one peripatetic salesman by a lapel, who gushed that they sold 45 cars yesterday, compared to ten for a normal Friday, and that 35 of these were due to the Cash for Clunkers program. Sure I could get a $4,500 credit for my 1995 BMW (17 mpg), and apply it to a new Prius (50 mpg), taking the price down to $19,500 and the monthly payment to $450/month for five years. In fact, the government stimulus program was so successful, that it ran out of money in the first four days, and congress rushed to triple it to $3 billion on Friday. It was like the survivors of a ship torpedoed at sea were swimming frantically for the only piece of wreckage that floated. Assuming that the average car drives 10,000 miles a year, and the average swap generates a mileage improvement from 15 mpg to 27 mpg, junking 750,000 clunkers will save 30 million barrels of crude a year, 1.5 days of our total annual consumption, or three days of imports. I asked to see the cars that were traded in and was told that the lots for the dealer, the used cars, and the detailer were all full, but I could see some if I went to the Target nearby where they were renting extra spaces. There I saw the fleet condemned to clunkerdom, GM Safari’s, Jeep Cherokees, Buick Regals, Dodge Ram pickup trucks and vans, and Chrysler minivans by the dozen, all with “CFC” marked on their windshields, a certain death sentence. These sorry excuses for transportation will never belch blue smoke, nor drip oil on our interstates again. I can’t imagine a sorrier commentary on the management failure of the US car industry for the last 30 years. www.madhedgefundtrader.com

shorts-r-us

August 1, 2009 10:51 PM

Am I the only one on Crazy Pills, aren't we only making another Bubble?
Helicopter Ben lowered interest rates for bank lending,the fed manipulated interest rates for mortgages and now congress pumps money for cheap autos.
Did we not learn anything from the past?
I guess the laws of economics are thrown out the window and the Laws of Joe Biden are in: The only way to get out of Debt is to Spend More Money.

Works for Me

August 2, 2009 1:20 PM

We traded a '93 pickup for a fuel efficient midsize yesterday. The '93 had been a vehicle for our kids, but they each have a fuel efficient vehicle now. We will be driving the midsize and parking our newer pickup (to be used only for pulling trailers now). So the 93 with a rated 15, but actual 10 to 12, will be retired and replaced with a rated 25 vehicle. It was really interesting shopping for vehicles. The Ford and Chev dealers were very busy, selling cars, and the lots were half empty. The Honda and Toyota dealers were quiet, and their lots were full of cars. (I didn't look at Chrysler, Nissan, Subaru, or some of the others.) It looks like Honda and Toyota are missing a lot of sales because they do not have an extra $2000 rebate of some type. They sure had a lot of nice cars on their lots.

We were planning to buy a midsize in another year or so, basically we moved up the timetable. Have a bunch of cash that is out of the market at the moment that will pay for the vehicle. Not a good investment (cars never are) but the stock market has been depreciating faster than new cars! (In the one year time frame.)

mike

August 2, 2009 2:15 PM

Man what a complex problem I hope that these doesn't hurt the car dealers or turn into a repo problem like it did in the housing industry. I actually purchased a great video on this. Kanban Video

Michael L

August 3, 2009 1:54 AM

Kinsley Bingham,

You have it backwards. People who have been driving gas-guzzlers are BENEFITING from tax policy at the expense of those who drive less, or more efficiently, or not at all. If taxes on gas were to cover all the expense of getting that gas, all the expense of maintaining traffic systems for users of that gas, and cleaning up the destruction of our planet caused by the burning of that gas, they would be a lot more than they are now, as in $7/gallon. (See for example www.energyandcapital.com/articles/oil-gas-crude/461). These costs are instead borne by other taxes or by running deficits. So every gallon of gas you buy and consume means you are receiving a gift from others who are consuming less. The original poster was right. Gas-guzzler drivers have always been rewarded unfairly, and now are being rewarded again for their bad behavior.

Troy

August 3, 2009 5:52 PM

Three deals completed under the C4C program.

1. 1995 Jeep Cherokee(with Salvage title and 200,000 miles+) and currently damaged for a Nissan Altima 4cyl. Gas mileage increase?? +11 mpg

2. 1985 Nissan MAxima(purchased new by owner over 200,000+ miles) for a 2009 Nissan Versa 1.8L. Gas mileage increase +10 mpg

3. 1995 Jeep Grand Cherokee V8 for a 2009 Nissan Rogue. Gas mileage increase: +10 mpg

One customer is a recent college grad working with an entry level income in her field.

One couple is retired and on a fised income.

One member of the other couple is currently laid off.

I think this program is great for all involved.

Consumers get help purchasing new vehicles that they could not afford otherwise.

Dealers get sales and salespeople get to make a comission.

Clunkers are off the street.

Banks are financing vehicles for way under Loan value after the Clunker Voucher and Manufactures' rebates.

Insurance companies are collecting higher primiums for more expensive cars.

States are collecting more sales tax and license fees on the purchases.

Plus no one has mentioned that the vehicles that people are buying under this program are so much more safer for everyone than the clunkers they are trading.

WAKE UP WASHINGTON

August 4, 2009 6:12 PM

DO YOU KNOW WHAT THEY ARE DOING WITH "CLUNKERS"? I KNOW SOMEONE WHO WORKS AT A MAJOR DEALERSHIP, THEY HAVE TO PHYSICALLY DESTROY EVERY UNIT (SMASH, CRUSH, BLOW THE ENGINE) SOME 'CLUNKERS' ARE 2003 MODELS WITH 80K MILES ON THEM! DOES THE GOVERNMENT EVEN THINK? HOW MANY PEOPLE COULD BENEFIT FROM RECEIVING THESE VEHICLES???? LOW INCOME FAMILIES, THOSE WHO COULD GET TO WORK DRIVING SUCH A VEHICLE. reduce REUSE recycle. WHAT A WASTE! WAKE UP AMERICA. STOP CHATTING AND SPEAK UP!

Frank

August 4, 2009 8:28 PM

I agree with Michael L. How is it logical that the program is paying people $3,500-$4,500 to purchase trucks that don't do as good on gas as my 1993 Volvo with 200K miles -- which, of course, doesn't qualify.

jhenry

August 10, 2009 5:31 AM

For working trucks the rule is not based on the fuel efficieny. As long as it is manufactured before 2001 they all qualify
but cannot be older than 25 years old.

Jhenry
Blogger
www.cashforclunkersfacts.info
http://www.cashforclunkersfacts.info

robert

August 18, 2009 1:38 PM

1. HOW DOES IT HELP TH ECONOMY TO DESTROY WEALTH? it doesnt, we are all made poorer.
2. HOW DOES IT HELP THE ECONOMY TO SHIFT TAXPAYER MONEY TO THE AUTO-INDUSTRY? it doesnt, it shifts money from one pocket to another
conclusion, we were all just duped into another tax to help the environment. All this, during a recession! We are being made poorer by our stupid leaders. Throw them out! they are terrible.

etan

August 18, 2009 1:57 PM

This is stupidity. the clunkers need to be destroyed, this will make us all poorer, by that logic why dont we demolish our homes to grow the economy? The taxpayers will need to pay the money, this is outragious during a recession. The poor will be hurt because it will be harder to buy a used car (it would not pay to sell your car for much less than 4500). This shrinks the economy, it does not grow it. How retarded can the dem's be?

Yellowshock

August 24, 2009 8:28 PM

Pure genius, Obama... Now we will have a gazillion gas guzzlers exported to some backwater country with no money (but less debt than us) to pump the same (crap) into the atmosphere. Hooray for the Obama administration. Also great to know our money is spent on fueling the car industry that deserves a shake out to begin with.

boilerboy08

October 13, 2009 4:14 AM

All of you republicans are just rooting for failure. This program HAS been a success, and it HAS boosted the economy.

I think your real problem with it is the fact that it really did work.

boilerboy08

October 13, 2009 2:41 PM

All of you republicans are just rooting for failure. This program HAS been a success, and it HAS boosted the economy.

I think your real problem with it is the fact that it really did work.

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Want the straight scoop on the auto industry? Our man in Detroit David Welch, brings keen observations and provocative perspective on the auto business.

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