Rarely has a government program displayed the gross ignorance of our political and media elites as the “Cash for Clunker” program. Let’s forget about the colossal inefficiencies in operating this program and the resulting threats against dealers of fines up to $15,000. The entire program is a gross misuse of government funds.
I actually looked at participating in this program. We were replacing our son’s 1999 Nissan Altima. This ten year old car had a little over 50,000 miles on it. Initially, we had the impression that we would get the trade-in value of the car and a voucher for $3,500. We soon found out it was either/or. Given that the 1999 Altima was worth about $4,000, it made no sense to participate. Even if the vehicle was worth $3,000 it would be only a $500 advantage to us, but a cost of $3,500 to the government.
One problem is many of the cars being turned in are like my son’s or nicer. They have a value of at least $4,000, which means these people are walking away from higher resale value of their existing vehicle. Most are probably in the $2,500-$3,500 range, and thus they are getting very little economic benefit. Because that price reflects the trade-in value at the dealership, these folks would likely receive even more money if they just sold the cars themselves. .
The government is pouring out $3 billion for very little economic benefit to the individual consumer and potentially negligible benefit to the country. The program leaves them the impression they are getting “Free” money when they are receiving very little and adding considerably to the national debt.
The argument has been made that we are getting old cars off the road and replacing them with more fuel efficient vehicles. But that is happening everyday without a government program. There are now about 260 million vehicles in the United States. When economic times were better, these vehicles were being replaced at the rate of about 17 million a year. The replacement rate was about 10 million in June 2009, and jumped to 11 million in July. The new cars replaced older outdated cars, cars destroyed in accidents and cars that just wear out. The used cars move down the pipeline, replacing the old vehicles in the fleet.
Another problem with this program is it specifically prohibits trading in a car more than 25 years old. If there are indeed cars we would like to get off the road, either for fuel inefficiency or for emission deficiencies, then this program should be targeted to those vehicles which are at the end of their useful life and are not as fuel-efficient on average as vehicles produced today. These are the real clunkers. Only a federal bureaucrat could come up with a scheme restricting participation by those people who could benefit the most.
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