Is Cash for Clunkers an environmental coup or just another Detroit bailout?
Starting today, the government's Car Allowance Rebate System (CARS), aka "Cash for Clunkers," will go into effect. The controversial program, which has drawn both the appreciation and the ire of the environmental community, is designed to stimulate the automobile industry and encourage the adoption of more fuel-efficient vehicles. The program is currently limited to 1 million car vouchers, and will run until November 1, at which time Congress will decide whether or not to keep it.
CARS defines "clunkers" as driveable vehicles that are 25 years old or younger, get fewer than 18 miles per gallon, and have been insured by the same person for at least one year; here is a list of cars that qualify. If owners trade eligible cars in for more efficient models, they receive cash rebates that are scaled, based on the improvement in mileage. Trades that improve mileage by four miles per gallon qualify for $3,500, while trades that get 10 miles per gallon better mileage qualify for $4,500.
In many ways, the ultimate measure of the program's effectiveness will lie in how one views it. As a stimulus bill, designed to goose Detroit, it is likely to succeed admirably, as many consumers will use it as an excuse to pour money into the auto industry. As a piece of environmental legislation, on the other hand, it is mediocre at best and counterproductive at worst.
The first problem is that the program does not allow participants to purchase used cars, regardless of the vehicle's efficiency; this means that every CARS sale will encourage further pollution, as it will stimulate the production of a new car. While this is great for Detroit, it isn't all that good for the environment. For that matter, it also isn't all that good for consumers, as a $4,500 check won't begin to cover the 20-30 percent price depreciation on a one-year-old car, much less the 45 percent price depreciation on a three-year-old car. In other words, any consumer savings will evaporate as soon as participants drive their new cars off the lot.
Another problem is that, while CARS encourages more fuel efficient cars, it doesn't really encourage absolute fuel efficiency. According to Senators Diane Feinstein and Susan Collins, a consumer trading in an old gas guzzler could easily apply the rebate to the purchase of a Hummer. After all, they reason, while the behemoth's 16 miles per gallon is terrible by today's standards, there are millions of 1980's-era clunkers that get 12 miles per gallon or less.
In truth, the situation is not quite that bad. Under the program, cars must get at least 22 miles per gallon, small trucks and SUVs must get 18 miles per gallon, and large trucks have to get 15 miles per gallon. However, while Feinstein and Collins' scenario is excessive, it highlights the very real fact that CARS' requirements aren't exactly revolutionary.
One other hiccup lies in the flexible definition of the term "clunker." According to some detractors, the program encourages drivers to get rid of cars that may drive perfectly well, but are a few years old. This can be bad business for the consumer, as drivers assume fresh debt to buy cars that they don't really need and abandon cars that aren't quite ready for the graveyard.
Admittedly, there are some buyers who will greatly benefit from CARS. For new-car-obsessed drivers who are currently pouring money into a lemon and have been waiting for a reason to buy, this will certainly be a boon. Moreover, with Chrysler matching the government's refund, this may be the best time to drive home a new Sebring or PT Cruiser. With any luck, it will also be relatively fuel-efficient, too.