Car Guy

Clunker Program Throws a Rod

Don't worry -- after a quick fix it'll throw two rods at once.

By 8.3.09

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When you give stuff away for free it tends to go away fast. Especially if it's money you're giving away for free.

The government, of course, seems not to understand this concept. Perhaps because it is other people's money it is always giving away.

Last week, the so-called "cash for clunker" program briefly threw a rod -- apparently because of the free-for-all ignited by a $1 billion dollar giveaway to finance the program. It seems there were more takers than anticipated. And the givers (taxpayers by proxy) insufficient to meet the demand. So the government announced late Wednesday evening that it would be "temporarily" suspending the program until it figures out what to do.

Translation: Until it figures out how to find more of your money to give away.

Well, the solution was quickly found. Within 24 hours, the House passed legislation that will fund the Great Clunker Giveaway of 2009 with another $2 billion of your money. 

The program -- officially titled the Car Allowance Rebate System -- provided what amounted to government-provided store credits of between $3,500 and $4,500 toward the purchase of a new car if the applicant brought in an old "clunker" for trade-in.

The idea behind it all was to encourage the accelerated retirement of older, low-mileage cars in favor of new, higher mileage ones -- in order to encourage fuel-efficiency as well as give a boost to the stultified car industry.

But here's the catch. Well, the first catch:

The store credits are not like the usual trade-in credit a buyer receives for his old car. Instead of accepting the old car as a trade-in and then re-selling it on the used car lot, the dealership is required to have the traded-in car physically destroyed -- and with it, any remaining value it may have had. The "clunker credit" is supposed to compensate the dealer for the loss of the trade-in's value.

Under the old system, the traded-in car's value remained in the system until it had no value left -- at which point it was typically sent to the crusher for scrap. Under the new system, "clunkers" -- many of them with plenty of miles (and value) still left -- simply get thrown away.

You -- the taxpaying sucker -- pay the tab.

To put a finer point on it: The government forces you to pay taxes so it can throw away your neighbor's older car and give him $3,500 to $4,500 toward the purchase of a new one.

Isn't that nice of you?

Second catch:

The program touts all the fuel that will be saved, but how much fuel, really, is saved when a person trades in an 18 mpg "clunker" for a new car that gets 22 mpg? Four mpg, gross, in this example. Okay, but how much energy (most of it oil-sourced) goes into making a brand-new car? The net savings just got much smaller. Now factor in the lost value of the crushed "clunker" -- including parts that could have been recycled and re-used at much a lower net "energy cost" -- and the final value of the whole thing is probably nil as far as efficiency is concerned.

Meanwhile, there's a rush (temporary) on new cars, since $3,500-$4,500 off the sticker price is a strong inducement for consumers. On the other hand, has it occurred to anyone that a government subsidized new car at $3,500-$4,500 off sticker price is not a "sale"? The government is basically paying people to buy new cars.

What happens when the subsidies dry up?

Looks like we're about to find out -- as the kitty is already running dry.

So naturally, lawmakers are scrambling to find more of your tax money to give away in order to keep the shell game going. Michigan Rep. Candice Miller says "... this is simply the most stimulative (sic) $1 billion the federal government has spent during the entire economic downturn... the government must come up with more money, immediately, to keep this program going."

Rep. Miller, it should be noted, is a Republican. Weren't Republicans supposed to be against Robin Hood-style giveaways?

A fine mess you've got us into, Obama!

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About the Author

Eric Peters is an automotive columnist and author of Automotive Atrocities: The Cars You Love to Hate (Motor Books International) and a new book, Road Hogs.