Cash for Clunkers Program Gets Second Life
Late last Thursday, an announcement that the $1 Billion budget of the Cash for Clunkers program had been expended sent shock waves through the auto industry. However, Congress quickly acted to help keep the incentive program running.
In a bill voted on last night by the Senate, an additional $2 Billion has been allocated to the Cash for Clunkers Program. Today, this bill is expected to be signed into law by President Obama.
The Cash for Clunkers Program provides an incentive for Americans to trade in their older vehicle for a new more fuel efficient model. Those that upgrade to a vehicle that has a 4mpg increase in fuel efficiency will receive $3,500, while a 10mpg increase receives $4,500.
Originally $1 Billion was allocated for the Cash for Clunkers Program and tens of thousands of car dealers all over the country quickly signed up for the program. By last week, it was estimated that around 250,000 new cars had been purchased as part of the Cash for Clunkers program, expending the $1 Billion budget.
With its renewed budget, the Cash for Clunkers Program has been revived and will continue to offer an incentive for new car purchases.
Cash for Clunkers: Short Term vs Long Term Effects
The short term effect of the Cash for Clunkers program is that it increases the number of new car sales at a time when the auto industry is on very shaky ground.
The program also offers a benefit to those purchasing a new car, who can receive a big discount on their new vehicle purchase, while also helping scrap yards who recycle the traded in vehicles.
However, this incentive program could also have some very significant long term effects on our overall fuel consumption. Since each new car purchased must be more fuel efficient and the trade in “destroyed,” each new vehicle is replacing a vehicle that has a lower mpg. This means the number of vehicles on the road stays the same, but their fuel efficiency is effectively increased.
As a result, each car purchased as part of the Cash for Clunkers program represents at least a 4mpg increase in fuel efficiency, with some representing 10mpg increases. Over time, this translates to a very significant decrease in fuel consumption.
Only 4mpg, Whats the Big Deal?
A 4mpg increase might not sound like a lot, but it is actually fairly significant increase, especially for those who are driving cars that get low gas mileage.
To help illustrate this point, consider the following example:
Lets say we have two vehicles, one that gets 20mpg and one that gets 50mpg. If each of these vehicles were driven 15,000 miles, the vehicle that gets 20mpg will use 750 gallons of gasoline, while the other vehicle uses 300 gallons.
Now, lets assume that both of these vehicles have a 4mpg increase.
At 24mpg, 625 gallons of gas would be used, which represents 125 fewer gallons of gas and a 15% decrease in fuel consumption.
At 54mpg, 278 gallons of gas would be used, which represents 28 fewer gallons of gas used and a 7% decrease in fuel consumption.
While the lower millage vehicle uses more gas, a 4mpg increase accounts for almost 5 times less gas used in the 24mpg vehicle. This means that replacing the cars and trucks that get only 15mpg or 20mpg will have a huge impact impact on fuel use, much more so than replacing cars that get higher mpg.
Since most people don’t drive a Prius that gets 50mpg, each car purchased as part of the Cash for Clunkers program will have a significant impact on gasoline consumption, even if it only has the minimum 4mpg increase instead of the full 10mpg.
About the Author
Tiger is a writer who writes about a number of health and financial topics. The Cash for Clunkers program is not the only incentive program currently offered by the government. As part of the American Recovery and Reinvestment Act, $237 Billion has been set aside for individual tax relief. This includes Obamas First Time Homebuyers tax credit, which provides up to $8,000 towards the purchase of a home.
Comments
I have mixed feelings about this program. Our car companies need it, but do we really need to destroy every car that is brought in through it? no way. Automatically they are trashed, no way to use the engines for rebuilds, nothing. that to me is pretty scary!
If you’re interested CNBC has put together a slideshow which lists the most popular trade-ins and new vehicles purchased under the CARS program. You can check it out here: http://www.cnbc.com/id/32319164
Thanks!
@karissa, you bring up a good point and to an extent it is wasteful.
I think it is important to note that all of the other parts, such as the transmission and body panels, are fair game though and scrap yards are recycling these parts.
Perhaps they could have found a better solution though, maybe by allowing the engine be removed and the frame destroyed. However, the idea of the program is that each fuel efficient vehicle replaces an inefficient one, with the latter being effectively removed from our fleet of vehicles. I think disabling the engine may be the easiest way to achieve this goal and reduce fraud.
With that said, as a backyard mechanic, I do hate to see a perfectly good engine destroyed.
This programs have some strict rules so many would-be buyers don’t qualify like if anyone recently made car purchases, trades or transfers.
I like this program so that money does not give the car manufacturers in person (because having received money from the state, they could distribute them among their managers, as was the case with many banks), and encourage buyers by offering them excellent conditions ..
Cash for clunkers is hurting charity car donation since many of the cars being turned in for a voucher would have been donated to charity for a tax deduction. These cars are being destroyed when the ones in good condition could be given to the poor or sold with the proceeds being used by the charity to help fund their programs. This is such a waste.
@Cars4Charities: Although you’re seeing a temporary drop in car donations you have to look at the bigger picture.
100s of thousands of jobs and economic stability are more important (don’t mean to sound rude). As the economy recovers and the scheme is no longer needed you will see an increase in donations.
I personally think it is a wasteful program. There are still a lot of folks out there who will not be able to get a new car even with this program. All of the cars they have rendered useless have been wasted, when they could have been sold to someone else.
I will just pay off my car and drive it till it dies. It’s scary to think that the dealers might have to stick the consumer with the difference if the money doesn’t come through. They would have been better off keeping their old car.
If it sounds too good to be true, it probably is!!
I had also heard they were planning to cancel the cash for clunckers program and am glad to hear I will have a second chance to trade in my old car. I think this is a good program to stimulate the economy.
karissa @ I am much concern with your point of view.
Thank goodness this scam is comming to an end. This plan is in no way green. The potential offset in greenhouse gasses from old to new will not compensate for the greenhouse gasses created to produce the new car or required to hopefully recycle it one day. Especially when the Ford F150 is one of the top ten being purchased. The plan should have required all new cars puchased get 40+ MPG. This is why recycling is last in the famous reduce, reuse, recycle trilogy. Really want to save the planet, reduce the number of kids you might be planning to have. Some negative population growth would be good right about now.