Cash for Clunkers could give you $5,000 toward a new car

Now that President Obama has come down as a supporter of a "Cash for Clunkers" program, lawmakers are getting in gear to move the legislation through the house and the senate. Right now there are two Cash for Clunkers proposals out there, S.247, sponsored by Diane Feinstein back in January, and H.R. 1550, known as CARS, which was introduced to the Senate by Betty Sutton in March. While there are some differences in what cars would be eligible; both bills will allow the government to give you up to $5,000 toward the purchase of a new car if you turn over your old car to be scrapped.

Originally the focus of the Cash for Clunkers program was to save the environment. Environmentalists argue that removing these older cars from the road will reduce pollution, but now there is a growing feeling that the program is being misappropriated to funnel more money to the auto industry.

The Feinstein bill requires that new cars be 25% more fuel efficient than current government standards, while the CARS bill only requires a mpg rating of 27 to be eligible for a voucher; which is below current average industry mpg requirements. While the CARS version of Cash for Clunkers makes more cars eligible for the voucher; Bill Chameides of Duke University points out that there is a 50% chance that the car being scrapped gets better miles per gallon than the new one!

Under the CARS ac,t US News estimates that close to 60 vehicles will be eligible for the voucher program with five to 10 available from each automaker. It appears that the cheapest car to make the list is the Chevy Aveo, which clocks in at just over $12,000. Also on the list are three cars from Pontiac, which may or may not be available in a dealership by the time this bill gets passed.

While getting clunkers off the streets is a laudable effort on the environmental front, it isn't without its faults.

The most obvious issue is that the scrapped cars will end up, well, scrapped, in junkyards and landfills across the nation. This hasn't gone unnoticed by the group, Fight Cash for Clunkers, who argue that this would simply fill up landfills, in turn harming the environment. Even though the group is sponsored by the Automotive Aftermarket Industry Association, a group that has a vested interest in old cars, where the scrapped cars end up is a valid concern.

The problem that many people won't immediately see is that by scrapping a significant number of cars that are eight or more years old, there will be fewer cheap vehicles for certain low-income segments of people who can't even afford most used cars.

For the past month I have been helping someone look for an old used car for close to $1,000, and let me tell you the pickings are already slim. Even looking on Craigslist, it's hard to find a running old car in that price range. If we start scrapping cars made before 2001, then what happens to the availability of even $3,000-$5,000 cars next year; in five years? This is a valid concern for people who need cheap transportation, especially with the lack of public transportation in many areas.

If this bill is passed, the money funding these vouchers will come right out of the stimulus bill which has already propped up automakers and banks alike. It will be very interesting to see how people react when they have a shot at bailout money of their own.

Read Full Story