The Cash For Clunkers Program Will Not Work

The stated goal of the federal Cash For Clunkers program is to stimulate the economy while upgrading the average fuel efficiency of the American automobile fleet.  A similar program worked wonders in Germany, boosting new car sales by 40%, but many doubt the American version of the program will be nearly as successful.  Personally, I can’t see how it could possibly succeed on the same scale due to some severe limitations of the program.

Cash For Clunkers Is A Token Gesture

The American program does bare a vague resemblance to its successful German counterpart, but the similarities are few and far between.  For starters, the German version allocated $5 billion to get clunkers off the road while the American Car Allowance Rebate System (or CARS, barf), allocates a mere $1 billion for a population more than three times as large as Germany’s.  On a per-capita basis, the Germans invested 15 times as much in their program.  At most, the program has enough funds to purchase around 250,000 new cars before running out, which amounts to only about one month of sales volume.  Does anybody honestly expect the same level of success from such a meager investment?

The Rules Are Too Strict

The German program defined a “clunker” as any automobile at least 9 years old, with no other qualifications.  Consequently, a lot of German motorists were able to take advantage of the deal.  The American rules, on the other hand, are far more stringent.  In order to trade in your clunker for cash, your vehicle must be less than 25 years old, must have gotten an EPA-estimated 18 miles per gallon or less, and must have been continuously insured by the same driver for at least one full year prior to trading it in.  Thus, a 20 year old Buick that gets 20 mpg wouldn’t qualify whereas a 9 year old minivan getting 17 mpg would.  Motorists responsible enough to purchase a reasonably fuel-efficient car 20 years ago are simply out of luck.

Those Most Likely To Take Advantage Are Ineligible

While concentrating the program’s money on very fuel-inefficient vehicles may or may not get more of the true gas-guzzlers off the road (I’m betting it won’t), it will do very little if anything to stimulate the economy since most motorists who were able to afford SUV’s to begin with are unlikely to go out and purchase a new, qualifying automobile for a measly $3,500 tax credit.  Remember, the average SUV costs far more than the average compact car.  Cash-strapped consumers driving the real clunkers who would benefit the most and are most likely to take advantage of the program; those driving inexpensive automobiles at least 10 years old, will likely be cut out completely since their cars probably already get over 18 mpg.  Similarly, well-off motorists who could afford a $40,000 SUV to begin with would presumably prefer to purchase another SUV, which wouldn’t qualify for the tax credit.  Thus, it won’t enter into the decision-making process and won’t spur additional spending.

Overall, the American Cash For Clunkers program is too underfunded and poorly-planned to have the desired effect.  In the end, it will neither upgrade the nation’s car fleet nor stimulate the economy.  Auto workers will continue losing their jobs and Americans will continue to hoard cash.  In tough times, which would you rather have:  a shiny new car or financial security in the form of cash in the bank?  I’m betting Americans will opt for the latter.