Cash for Clunkers: A Clunker of a Program

Upon first hearing about the ‘Cash for Clunkers’ government program I thought it sounded like a deal. It also sounded like the perfect time for this broke college student to trade in her 2000 Kia Spectra for something new and shiny. Having only paid $1500 for this car myself I figured I would never get someone to pay as much money for my car than what the government was just handing over. It’s not like my little green nine-year old car is in bad shape. Sure it has a scratch here and there and a small dent the side; it still has manual locks and roll-up windows. But it ran, it only has 55,000 miles on it, and it gets me from point A to point B. I figured I didn’t need to add anymore onto my debt and kept my clunker, and I think I made the right decision.

The Car Allowance Rebate System more commonly known as ‘Cash for Clunkers’ seemed like a beneficial program on the outside. The program started on July 1, 2009 and ended on August 24 of the same year. The reason for the sooner- than-expected ending date was due to the end of its resources, which ended up being three billion US dollars. The program consisted of trading in old cars for a bonus of up to $4,500 of taxpayer money for the purchase of a lease of one of the eligible cars under the program. The purpose of ‘Cash for Clunkers’ was to help car dealers bring in customers in hopes they would buy off the surplus supply of vehicles. In the first month it looked like the program was a huge success because of the very high demand. The aftermath of the program proved that it provided more harm than good.

For consumers this program could have been the best or the worst depending on one’s situation. Those people looking to buy a new car benefitted greatly but only if they could afford the vehicle in the first place. They basically received a huge discount on a new car, which they would have been willing to pay full price for in upcoming months or years anyway. Even though to these new car owners the new program was like a gift, it was a misfortune to the taxpayers who are financing the program and ultimately the other patron’s new vehicles.

On the other hand, middle and lower class individuals in need of a vehicle but who could not afford a new car did not make out so well. The worst part is that now because of the program many customers can not even find a used car. Part of the deal of the Car Allowance Rebate System was that the old cars that were traded in had to be destroyed. Even cars that like mine, that still only had 55,000 miles and ran perfectly were being crushed. Some cars could have been only a year old! These are valuable resources being demolished when they could be useful to other consumers, therefore these cars should have been used for their own program in which they sell these cars not destroy them. Instead, the prices of used cars have gone up in response to the reduced supply making it hard for some to purchase a vehicle.

Meanwhile from the economic standpoint the program was more costly than beneficial. According to two University of Delaware professors, Burton Abrams and George R. Parsons, the total cost per car was about 2,000 dollars! What was just supposed to be a one billion dollar program ended up being three billion dollars paid out to the purchases of 700,000 cars. Although the short term effects were good and the program ended up reaching its goal on what it intended to do, which was to reduce the surplus supply of vehicles, it was not cost beneficial. There are also no long term effects. The auto industry sales have slumped back down to what they were before the program took place. The program also may have declined sales for the upcoming quarter because instead of waiting to buy cars people jumped right on board of the program. Furthermore, many auto dealers haven’t received all their vouchers owed to them by the government.

Overall the Car Allowance Rebate System had more cons than pros. It didn’t boost car sales for the year at all. It wasn’t cost beneficial and it also hurt the most susceptible people in the current recession based economy, the lower and middle class. It is safe to say that I am glad that I did not send my ‘Specy’ to its death.