Cash For Clunkers – A Winner?

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Green, Supply & Demand

We stand corrected. The Cash for Clunkers program appears to be a huge success. Some have even touted it as one of the most successful stimulus programs of this recession. We felt from a true economic perspective, the program would only appeal to a small number of buyers. Instead, people who didn’t even qualify for the Cash for Clunkers program have showed up in dealer’s showrooms anyway.

Yet still, not everyone agrees the program is a good one. Consider this post that makes several arguments against Cash for Clunkers. First, the fact that old cars get destroyed (as opposed to having parts recycled) harm automotive recyclers. According to this article from the Associated Press, engines and drive trains account for 60% of a recycler’s revenues.  But taking the argument one step further, it’s actually quite anti-green as destroying those old parts (as opposed to actually recycling) means that new parts have to be produced for replacements and/or the cost of the parts remaining increases for those who least can afford to pay (the program calls for the engines to be destroyed via a solution that must get poured into the old car’s engine and therefore, not recycled).

And this article analyzes the number of trade-ins that would have occurred anyway (200,000 every three months) vs. the program (222,000 or 286,000) according to Edmunds.com. The linked article above article specifically examines the cost of the program to the taxpayer in connection with the marginal increase in the number of cars traded in. When examined in this context, the author argues that each car costs the US taxpayer either $45,354 or $11,628, depending on the exact number of rebates at the $4500 amount vs. the $3500 amount.

One comment from a different article also makes an interesting point. If a home builder wants to sell a new home, he has to lower his price to compete with foreclosed home sales. But when a car company wants to sell a car, he no longer needs to pay attention to repossession sales to justify retail prices. Isn’t this a double-bail out for the car-makers?

And what about donating your car to charity? We received a note from a reader who suggested that another alternative to the Cash for Clunkers program is to donate a car to charity. If you are interested in that option, check out this website: for more information.

Maybe I’m a sore loser. I’m happy that any demand has been stimulated. But it’s not the most green policy (ironically) and will continue to harm those who can least afford a new car not to mention the cost to the US taxpayer and additional debt born by our government.

–Lisa Reisman

Comments (2)

  1. Scott Evans says:

    How can this program possibly be bad for automotive recyclers? They are reaping huge benefits of 75 million pounds of non-ferrous scrap that they will process, given them a scrap flow that has been woefully absent in the recent economy. Also, how can you possibly say, after seeing today’s automotive sales, that these cars would have been traded in anyway?

    And, how is this not green. If we assume that each of the new cars drives 100,000 miles, there will be a savings of 2392 gallons of gasoline over the lifetime of the car; and 597,750,000 gallons over the 250,000 cars purchased under the program. This is a massive reduction in carbon emissions.

    Finally, its funny to hear people complain about 1 billion spent in a deficit of 1.8 trillion, when this 1 billion is clearly having a massive positive effect on demand, employment, etc. etc. If anything, this program creates jobs, reduces carbon emissions, and improves our trade deficit at minimal cost.

    Yes, Lisa, you are a sore loser. After complaining that the program would never work, now you have to complain about deficits….

  2. admin says:

    Scott, Thanks for your comments, even if I’m a sore loser.

    “Why throw away good parts when the supply chain is in jeopardy? It doesn’t make a whole lot of sense,” said Michael Wilson, executive vice president of the Automotive Recyclers Association based in Manassas, Va. Engines and drivetrains account for 60 percent of recyclers’ revenue from a used vehicle, Wilson said.
    Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2009/07/28/financial/f094412D20.DTL#ixzz0N9OfjIQz. Sure they may be excited about the other scrap value but the program minimizes their returns because the gov’t has prescribed the disposal technique.

    They were opposed to the notion of dealers pouring a sodium silicate solution into the engines making them non-workable so that a dealer would be unable to re-purpose or sell the engines. There is an environmental concern with the disposal of engines containing a sodium silicate solution. But no matter, I’m sure most dealers won’t use the solutions and the recyclers will likely get what they wanted in the first place.

    Happy spending.

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