Wednesday, August 05, 2009

Revisiting Cash For Clunkers

$1B in money used, $2B more on the way.

Late last week the C.A.R.S. program, aka Cash For Clunkers, used up its initial allotment of $1B dollars. Congress is in the process of authorizing another $2B to continue the program.

There is obvious surprise at how quickly the money was used. At $3,500 to $4,500 per trade that translates into more than 200,000 new cars sold. Listening to NPR last week one of the program admins thought about 40,000 sales were added to what could have been readily expected in the current climate. He also said the program admins suspected that there were a lot of presales - before the program officially started - that were processed last week.

In multiple stories I've heard in the last 5 days people have complained about the traded in cars being destroyed. Dealers are required to drain the oil from the engines, replace it with a sodium silicate and water mixture, and run the engine at 2000 RPM until the engine seizes. Some junk dealers are complaining because the engine is the most valuable part of the car. Many dealers are saying they are destroying functional cars.

To which I say, "Yes!" That's one of the main points of this program. To remove high poluting cars off the road. Not out of people's back yards and garages where they haven't been running for years but off the road. If dealers resold the cars or junk dealers pulled the engines and resold you end up with the poluting cars back on the road. That's what we don't want.

I've said in the past that one problem I have with the program is that it can only be used to buy a new car. That's going to exclude a lot of lower income people who are more likely to be driving high poluting cars. Now obviously one of the goals of the program was also to boost new car sales to help dealers and manufactures in during this recession. So it was a compromise.

There was one requirement in the bill that I think could have been eliminated that would have been able to help new car sales and get more of the worst cars off the road. That requirement was that the person trading in the car had to have owned the car for at least 1 year. Now this, I believe, was a safe guard. People probably and rightly feared that some people would take advantage of other people by buying their used car for less than the C.A.R.S. rebate and trading it in. Certainly some of that would have happened.

If that requirement had not been in place people who could afford a new car could would have been able to buy a clunker from someone who could not afford a new car. Some of the clunker owners would have been taken advantage of. Many would have been able to get more money for their car than the could sell or trade it for. The buyer could turn around and trade it for more than s/he bought it for and buy a new car. That get's a new car sold, a clunker off the road and a third person making a profit.



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