Cash For Clunkers Doesn't Pass the Common Sense Test

Hemmings reports that the 'cash for clunkers' bill that's been bounced around is going to be included as part of an environmental bill called American Clean Energy and Security Act. Take a look at the Hemmings post for lots of links to info about the bill.

As an old car enthusiast, I stand against this kind fo thing because it takes old cars that may be desirable and sends them to the crusher. Even if they aren't restorable, they may have valuable parts that could be used to restore another. But even without my special interest in keeping neat old cars on the road, the idea makes little sense to me. I won't pretend that the following is the result of a lot of research and reading, it's not. It's just my thinking.

So what good can come from giving people a few thousand dollars (Hemmings says $4,500, but I don't know what the final is) toward a new car if they junk their old?


  • You get older, perhaps polluting, perhaps less efficient cars off the road

  • You give the car companies and dealers a boost by spurring sales.

That's it. Sounds good, though, doesn't it? i don't think it's really going to deliver on those things and it creates other problems.


Stick it to the Poor

To illustrate what's wrong, let me start with a couple of my recent clunkers.


  • In 2000, I traded a 1988 Grand Caravan with 180,000+ miles on our late model (at the time) Honda Odyssey. It was rusty, rattly and worn, but the engine was only 35K old and the tranny only 80K. Still, I got only $500 on trade. I'm sure it went to auction and eventually someone who needed a cheap car ended up with a solid van for around $1,500, maybe less.

  • In 2006 I got my new 2005 Mazda3. It replaced another rusty and worn car with 180K+ on the clock, a 1993 Escort. The car ran great, but the clutch went out. I gave it away to a mechanic who put a clutch in it ($100 or so in parts) and either drove it or sold it, I don't know. Even if it was sold, I doubt anyone paid over $1,000 for it, not bad for decent transportation.

Both of those cars had decent life left in them and whoever bought them got solid transportation for under $1,500. For a poor family, good, cheap transportation is sorely needed.

If cash for clunkers had been in place, well, the extra $4,000 on trade for the Caravan may have put me in a new Odyssey instead of used and $4,500 for the Escort would have been phenomenal. That would have been more than 25% down on my Mazda. But, that would mean that those two families wouldn't have had those sub-$2,000 cars available (the law says they must be crushed). Even if I hadn't taken advantage of the cash for clunkers, someone would have likely given me substantially more than market price fore each, maybe over $2,000 each, so they could turn it into $4,500 off a new car.

I wonder what effect cash for clunkers will have on the cheap car market that the working poor relies on? If every old car is suddenly a $4,500 coupon toward a new one, the price of basic transportation is bound to go up.

But We're Helping the Environment, Right?

But this is about the environment, getting old, inefficient polluters off the road. (My Escort was far from inefficient, averaging 34.6 MPG over the 10 years I owned it, but never mind that.) That is true, one of the purported benefits is getting old cars off the road and encouraging folks to get into more efficient and less polluting vehicles. Older cars may not meet current emissions laws and are more likely to be poorly maintained and therefore polluting more.

But, as I stated, the law as I understand it requires that the clunkers be destroyed. They cannot even be parted out to help keep other clunkers on the road. (Another hit to the poor who rely on cheap, junkyard replacement parts) Junkyard parts are a not insignificant part of keeping the environment clean. Giving these parts a new lease on life keeps them out of the landfill for a few more years.

What impact on the environment will disposing of hundreds of pounds of scrap metal and plastic, not to mention the fluids, have? Where is it all going to go?

It seems that we're trading one environmental problem for another.

It's Going to Help the Industry

Yes, for now. We're creating an artificial environment where new cars are more affordable, when that environment is gone, then what? Folks who are going to look for a car, are going to take advantage of this program and buy before it's over. Once it's up, I bet sales tumble for a time. So we're setting ourselves up for a short boom then another bust.

Have We Learned Nothing From the Housing crisis?

I heard Ben Stein sum up the mortgage crisis something like this. "Democrats wanted to give a mortgage to anyone with a pulse and Republicans wanted to let the banks do whatever they wanted with no regulation." So, at the urging of the Democratic congress (I'm sure there were other reasons too), banks lowered their lending standards and the Republicans lowered oversight. Folks saw a house, a bank now willing to lend and a payment they could afford (now anyway), and took on more than they should have.

Now, we are hanging another big carrot of folks heads. A new car! Look, here's $4.500 for your hooptie, just sign up for $12,000+ in debt. Doesn't anyone else feel a little deja vu here? How many folks are going to get sucked into loans they cannot afford? At least now the banks are so scared to lend that maybe they'll actually turn some of these people down.

But isn't the message a little off? Times are tough, go borrow money to replace a car that was serving you fine until we waved a $4,500 check in your face.

I'm sure there are other reasons that people smarter than me can come up with, but cash for clunkers looks a lot like a program that will cost more than it gives us. It raises prices on the poor, hurts the environment as much as it helps it, provides only a temporary boost for the industry and sends the wrong message. The only people it is really good for are congressmen who get (again) to look like they're doing something while actually making things worse. There's that Deja Vu feeling again.

Not to mention the neat old cars that will be gone forever.

10 Comments

This is pet peeve of mine as well (as you might have guessed).

Another point - those new cars? They don't just fall off of trees either. They need to be manufactured, and that manufacturing process has a lot of environmental waste.

For example - it takes more than 2000 gallons of water just to make the tires.

I've always found it interesting that we are encouraged to recycle and re-use everything....until it gets to cars.


I heard a similar program is already in progress in Germany. You've raised similar objections to those of the German critics. I tend to agree.

Mike - Good point on the manufacturing costs, I hadn't considered that. That's a larger cost to the environment than the scrapping of the old one.

Brian - Yeah, Germany and the UK have these programs already. Ironically, in Germany, Honda and Toyota have benefited a lot, while German makes BMW and Mercedes haven't. The new cars people are buying are small, efficient ones, not the larger cars that those two make. Not sure if VW or Opel are seeing gains.

Very interesting commentary. It's interesting to see how a vested interest in car companies is causing this Democrat administration to do things you wouldn't expect -- including what amounts to a benefit to those who are well-off, at the expense of the poor.

I'm currently driving a 1995 Corolla and my wife drives a 1997 Camry. I'd be very tempted to replace the Camry under this program. We know we'll have to replace it in a few years, and it might not make sense to delay until a time when this offer might not be on the table.

When we acquired these two cars, we sold the previous cars for $500 each to a single guy in our congregation. We drive 'em till the wheels fall off (almost). Actually both of those cars are still functional (an '89 Mazda 626 and a 92 Mazda Protege).

There are a lot of rumors floating about the details of the proposal. One is that the new car has to get 10 MPG better than the old and another is that the old car has to get less than 18 MPG itself.

The devil will be in the details, and both of those details came from reader comments rather than any actual post or article. If true, however, either would likely prevent you from taking advantage of it with your Camry, I bet.

I don't have a problem with helping people get rid of older cars. There are a lot of cars out there now that people didn't trade in cause they couldn't get value and can't sell cause nobody wants them. But, I don't think they should limit it to just trading in.

If you want them off the street buy them outright and let the people do what they want. You know, take your car to the crusher and get an incentive of $3,000 or whatever. That would help tons of poor people. It would clean up the environment as they wouldn't be sitting in peoples yards. It would stimulate the economy cause their going to buy something with it and it would open up millions of tons of steel, and glass which should lower those prices and increase building. It may encourage people to find other modes of transportation, (I just bought an electric utility vehicle). And, it'd make me happy.

Hey, keep me posted. Maybe I'll trade my truck in on an electric car if it goes through. :)

If you pay $3,000 for any car with no strings attached, that's going to essentially add $3,000 to the price of all used cars out there. Any benefit a poor person gets from the $3,000 in their pocket will be erased the next time they have to buy a car and find out that rusty old worn out 300K mile Civic is selling for $3,200 because the owner is guaranteed $3,000 from the government.

No more $500 - $2,500 cars that poor people rely on.

Additionally, because the cars must be scrapped, the used parts market will dry up, increasing the cost of repair, again on the poor who rely on used parts to keep their cheap cars running.

There are economic forces at work and when you tinker with the system, those forces will be applied in new ways, frequently with undesired outcomes.

Not to mention the huge amount of government cash required to fund such a project.

I think it sounds good at first, but it won't do most of what they promise it will.

Oh, and I forgot. There's a lot of talk in the media that this is about to be implemented, but there's no actual bill been introduced in congress yet. There are several bills that have been floating around, but none had the support to pass. A while back, it was announced that a compromise had been reached, but nothing specific yet.

It does sound like the older car or truck will have to get really bad mileage - in the teens - and the replacement car or truck will have to get 5-10 MPG better. Oh, and it only applies to new car purchases, not used.

A lot of people, mostly not well off, around here have several cars in their yard. They could get rid of several and probably pay cash outright for a car! LOL There will still be cheap cars too and probably just the good ones. People will trade one in on their new one but won't want to keep buying a new one. Eventually everyone that wants a new car will have one and there will still be lots of used ones.

Anyway. It won't happen and if it does it won't do what they intend it to. I'm so optimistic tonight.

Another bailout for auto industry. cash for clunker temp fix.People commiting to make monthly payment in this bad economy when they could lose thier jobs at anytime, I imagine in time the banks will be sreaming for a bailout because the people they financed for thier car could not keep thier obligation to monthly payments, At this point we are on a merrygoround when is it going to stop.



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  • Another bailout for auto industry. cash for clunker temp fix.People commiting to make monthly payment in this bad economy when they could lose thier jobs at anytime, I imagine in time the banks will be sreaming for a bai...

  • A lot of people, mostly not well off, around here have several cars in their yard. They could get rid of several and probably pay cash outright for a car! LOL There will still be cheap cars too and probably just the go...

  • Oh, and I forgot. There's a lot of talk in the media that this is about to be implemented, but there's no actual bill been introduced in congress yet. There are several bills that have been floating around, but none ha...

  • If you pay $3,000 for any car with no strings attached, that's going to essentially add $3,000 to the price of all used cars out there. Any benefit a poor person gets from the $3,000 in their pocket will be erased the n...

  • I don't have a problem with helping people get rid of older cars. There are a lot of cars out there now that people didn't trade in cause they couldn't get value and can't sell cause nobody wants them. But, I don't thi...

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