Obama Signs 'Cash For Clunkers' to Mixed Reviews

June 25, 2009

President Barack Obama yesterday signed into law the Consumer Assistance to Recycle and Save Program (CARS), or “Cash for Clunkers.” Its detractors are labeling it a classic waste of government money—and many supporters are wondering what went wrong.

When economist Alan Binder first proposed the scrappage program in a July 2008 New York Times Op-Ed piece, a struggling auto industry banded together with emissions hawks to champion a potential victory for both the economy and the environment. Is the law signed by President Obama a victory for the partnership—or a clunker itself? That depends on who you ask.

The Industry

For the auto industry—whose support for the bill came not only from Detroit but from Japan as well—the essential mission of this legislation was getting Americans back into dealerships and shopping for cars. To that end, any trade-in program would have been a step in the right direction. But Detroit worried that if fuel economy standards were set too high, it would lead consumers into the arms of foreign car companies like Toyota and Honda, whose offerings are generally cheaper and more fuel efficient than their American counterparts.

Enter Senators Debbie Stabenow (D-Mich.) and Sam Brownback (R-Kansas), who co-sponsered the version of the legislation which would eventually pass. Stabenow’s version of the bill increased the maximum fuel economy of cars eligible for trade-in to 18 mpg and decreased the incentive to buy truly fuel efficient cars by lowering the minimum improvement to 4 mpg. Boosters of the American auto industry would have liked to have the bill limited to cover only domestic cars—a violation of international trade laws—but with the incentive to buy Priuses and Insights gone, Detroit’s only qualm might now be that the program’s total funding was slashed to $1 billion—less than a quarter of the proposed $4.5 billion.

Green Car Backers

An alternate version of the legislation was introduced by Senators Dianne Feinstein (D-Calif.) and Susan Collins (R-Maine) which would have established a three-tiered incentive system. Fuel economy improvements of 7 mpg would be rewarded with $2500, 10 mpg boosts would get $3500, and 13 mpg increases would net $4500. When cries of protest from Detroit led to this proposal’s demise, Feinstein and Collins published an op-ed in the Wall Street Journal calling Stabenow’s bill “bad policy” and “another big bailout.” Both Senators would eventually end up voting for the bill, but voiced disappointment that pressure from the auto industry had sunk a superior bill.

The Skeptics

A third contingent of politicians and analysts opposed Cash for Clunkers simply because they didn’t think it would be an effective use of money. On The New York Times’ Freakanomics blog, economist Steven Levitt wrote as early as August of last year that the incentives provided by scrappage laws simply don’t work.

Unless the price the government pays for the clunkers is very high, the majority of vehicles that are turned in will not have been driven much, if at all. Indeed, I suspect one of the most visible responses to this program will be a new market for mechanics fixing up cars that don’t run at all just enough so that they can be driven to the government’s lot to collect the cash… (It) seems to me that any effect on the demand for new cars would be extremely limited. People who drive clunkers are generally not in the market for new cars.

Steven Levitt

An American public fatigued by the recent parade of government bailouts, seems to agree with the skeptics. A survey by Rasmussen Reports this week found that 54 percent of Americans oppose the program while only 35 percent favor it.

A Continental Perspective

As politicians and pundits debated the merits of Cash for Clunkers in the United States, similar programs instituted in eleven European Union countries over the course of the past year were in full swing. Though the details of these programs varied, most had no efficiency standards written into them at all—most simply mandated that a car had been purchased before a certain year. Since fuel economy of newer cars has increased dramatically across the continent in the past decade and with gas prices in Europe providing a built-in incentive to buy a fuel-sipper, there was no need.

For the most part, these programs found success, at least in terms of participation. In Germany, auto sales increased 40 percent over the course of the program, and carmakers there are clamoring for an extension in the hopes that the sales keep up.


Posted in Cash for Clunkers, Economics, News
Tagged as

Related Readings

  • David Morrison

    18 mpg that is too low not many cars are under that i have a 3.4 l v6 at 20 mpgs. any one lower than 18 will not care about that money

  • DHC

    Actually, almost every SUV gets less than 18 mpg, so hopefully, people will trade them in for sedans. The 4 MPG improvement “requirement” is what is ridiculous. And why are we rewarding people for making stupid buying decisions? Again!?!?! A gas tax would have made the government money and forced the abandonment of highly inefficient vehicles.

  • Samie

    Something tells me the Administration made a deal w/ the automakers in that they would not oppose any final clunkers legislation in exchange for agreement of tougher CAFE regulations.

    What worries me on the automakers end is that the domestics were complaining about increased fuel mileage for qualification

    Above Article:
    “But Detroit worried that if fuel economy standards were set too high, it would lead consumers into the arms of foreign car companies like Toyota and Honda, whose offerings are generally cheaper and more fuel efficient than their American counterparts.”

    This kind of attitude was what got us in trouble in the 1990′s/early 00′s as GM, Ford, and Chrysler said the same type junk while having the delegation from Michigan in thier pockets so no major mileage standards or environmental legislation would be passed.
    At some point Congress needs to end hearing this old story. I hope the domestics get it and produce more fuel efficient vehicles.

    This bill helps remove the large buildup of unsold cars & I’m doubtful this would happen but old tricks could reemerge as someone like Ford could ramp up production and marketing of vehicles like the F-150 to those who don’t need it just to cash in on this program.

  • RT656

    I’m trading in my 4wd van for a small sedan–I wouldn’t be interested in a new car at all without the bill. I haven’t bought a new car since 1982–it just doesn’t make economic sense to lose a third of the value in the first week. Since my kids will end up with the car (AND end up payiing for it in their future taxes); I really don’t see a problem in letting them pay for the instant loss in value (4500 aint bad for a 750 dollar beater)! Helps the cash flow in the short term and my kids will probably make more money than I do……..;)

  • Anonymous

    The problem I see with this bill on the surface is that it rewards previous buyers of fuel inefficient cars while simultaneously punishing previous buyers of fuel efficient cars (by disregarding those cars).

    While fuel efficient cars could have been held up to different standards, it makes ethical sense to have included some provision for cars rated at above 18 miles per gallon.

    Sigh – unfortunately, ethical sense seems to take no part in these decisions, and unless this program succeeds and expands in the future, mine and other fuel efficient soon-to-be clunkers will never qualify.

    Great. And now I’m all angry.

  • Todd1964

    I generally do not like these types of programs. The government simply is spending money they do not have. However, I would rather see money spent this way than wasting Billions in Iraq and Afghanistan. I sold my 2006 HCH because the wife hated it and went back to driving my old 1995 4X4 Ford Pickup. I had absolutely no plans of buying another new vehicle, but for the $4500.00 I just may head on over and drive the new Ford Fusion Hybrid. In fact, I may look at many models as any sedan would get better than 14mpg and definitely be better for the environment.

  • moishe k

    Do you see the next disaster coming ?

    Guys who can’t afford new car payments, using $3,500 to make first few payments,

    Then just like the housing market collapsed when unqualified buyers owed more then their home value

    The market will be flooded with repossessed 6 to 12 month old cars used car value will tank

  • Ryan

    I for one am extremely disappointed in how this has turned out. I’ve been following this bill for nearly a year and was hoping to trade in my 96′ Oldmobile Ciera – combined MPG 21. If they raised the low entry level MPG they would sell so many more cars. So many people are left out. Dumb!

  • ryan

    Wasn’t this bill originally going to allow individuals with a car “x” amount of years old apply this voucher to their new car purchase. They’ve crippled this bill.

  • Waylon

    Even this bill won’t get me to trade in my 79 Suburban, I only get 10 mpg but it’s paid for. I still spend less to operate my truck than I would on a new car payment.
    Plus, Detriot put itself in the mess it’s in, they got in bed with big oil high mileage high cost cars and trucks, then sent the plants out of country for cheap labor. I feel sorry for the people that work for them here, but when you pratice bad business you deserve to fail, and i see it coming for the big three.

  • karenc

    Cash for Clunkers has some negative consequence. One of them is that it will harm donations of cars to charity because the voucher is much greater than the tax deduction for donating a car. Congress could have stimulated car sales by just returning to allowing car donors to claim the book value as their tax deduction. Since most donated cars are recycled, there would be an environmental benefit as well.

  • otter

    Washington is out of control. So someone who’s making a six-figure income and drives an old SUV can now buy a discounted Lexus hybrid? Paid for by my middle-class taxes. And I won’t get any benefit since I’ve been driving a fuel efficient car for years. That sure seems fair.

  • Wildcat

    “Stupid buying decisions?” I bought a used 1984 Nissan pickup(built in Tennessee) in 1986. I bought it for its great mileage compared to Detroit iron, and it’s still going strong. Yes, it qualifies under this program so did I make a stupid decision buying this vehicle? I think not!

  • a

    i have a nissan pathfinder 1987!!! staight 6, no air, & in the market for a more fuel efficient vehicle!!! can not wait. finally i get bailed out!!! thankyou OBAMA!!!

  • scrappy

    It would have been nice if this were used to encourage modal shifts. Why not allow for exchanging a clunker for a $2,500 voucher that could be used with the local transit authority. This would beneift lower income folks that are not in the new vehcle market, reduced consumption considerably, and provided much needed support for transit operations.

  • Need2Change

    Rather than 18 mpg maximum and 4 mpg improvement, I would have preferred if the standard was on percent improvement. I will use 40% as an example.

    So if I had a 16 mpg vehicle, I would get the cash if I purchased a car that gets at least 22 mpg. If I had a vehicle which gets 25 mpg, I would need to purchase a car that gets at least 35 mpg to get the cash.

  • moishe k

    To Needtochange

    What do you expect from Washington ?

    1. EPA figures are not real world anyway

    2. any car with 100,000 miles or 10 years gets much less mpg than when new

  • Hurls

    I also believe it should have been a minimum of 40% increase over the trade-in vehicle you receive the voucher for. However, as you look at what is available from the manufacturers at Edmunds, the vast majority of vehicles that would qualify for purchase are from foreign companies.

  • Anonymous

    IF THE AMERICAN CAR MAKERS BUILT HIGH MPG CARS THEY WOULD NOT NEED A BAILOUT. STOP BAILING OUT GREEDY LOOSERS.

  • steved28

    I guess I made a “Stupid” buying decision too. Who knew you needed a truck to haul a 25ft boat? I should have bought an Escort!

    I don’t think the bill is fair either, but the bottom line is this. I am new car shopping today, I would not be without this bill.

  • crazynorm

    I agree. Most SUV’s on the road get less than, and in some cases WELL less than, 18MPG’s. I think if we can start lowering the number of those particular vehicles on the road we can help reduce emissions right away, as well as reduce consumption of oil. It’s a good step in the right direction, even if it is a small step.

  • chucki

    i have a 1993 buick century, rusty runs bad and a true clunker. I actually have been considering
    a new car (hybrid).

    Guess, what, my old clunker is too efficient to qualify getting 22mpg combined per the govs
    website. This is a stupid law and sucks. 18mpg. yes the SUVs get worse than that but are
    likely worth more than the $3-4K that they would net so they will all stay on the road just like
    my old clunker.

  • Mike77

    I’m surprised by how many of my friends have jumped on this. I think a lot of kids that were given their parents old SUV’s or trucks will jump on this. I bet a lot of people ages 22-30 jumping on this program. And it can’t really hurt? It’s only going to cost the country 1 billion dollars?

    BTW the US pumps 390 million gallons of gas a day and the federal government only gets 18.5 cents on ever gallon. Imagine if we just increased that by 10 cents we could pay for the cash for clunkers program in 25 days!!!!

  • jimhenry

    so if you have two or more clunkers at your house you cannot trade both of them for one car. The program is for one per
    person.

    Jimhenry
    Blogger
    http://www.cashforclunkersfacts.info
    http://www.cashforclunkersfacts.info

  • Jesse

    Wahhhhhhh