What is Cash for Clunkers
The formal name for the program was the Car Allowance Rebate System (CARS). The CARS program gave people who qualified a credit of up to $4,500, depending on the vehicle purchased.
Understanding Cash for Clunkers
The Car Allowance Rebate System (CARS) was signed into law by President Obama in July 2009 with mostly bipartisan support in Congress. The law was administered by the National Highway Traffic Safety Administration (NHTSA). Car dealers submitted the required information to the NHTSA on behalf of qualified new car buyers.
- Cash for Clunkers was a government program that provided financial incentives to car owners to trade in their old, less fuel-efficient vehicles for more fuel-efficient ones.
- To qualify for the credit, a traded-in car had to be less than 25 years old, have an EPA- rated fuel efficiency of less than 18 miles per gallon, be in drivable condition, and be scrapped.
- The program ended in November 2009 after the $3 billion allocated for it had been depleted.
- Supporters argue that the program stimulated the economy and reduced pollution.
- Critics of the program say that it created a shortage of used vehicles, increasing used car prices and harming income earners. They also claim that it was heavy on taxpayers and favored foreign manufacturers.
The program began in July of 2009. To qualify for the credit, a traded-in used car had to meet the following criteria:
- Be less than 25 years old
- Have an EPA-rated fuel efficiency of less than 18 miles per gallon
- Be in drivable condition
- Be scrapped, have the engine rendered unusable and the vehicle's body crushed
In addition, the new car being purchased had to have an EPA-rated fuel efficiency of more than 22 miles per gallon. The program ended in November 2009 after the $3 billion allocated for it had been depleted.
The rules for trucks were more complicated.
Light- and standard-duty model trucks, including SUVs, vans and pickup trucks had the following parameters:
- The traded-in truck must have a fuel-efficiency mileage rating of 18 mpg or less.
- The traded-in truck must be have at least 2 mpg higher rating to qualify for the $3,500 coupon or at least 5 mpg higher for the $4,500 credit.
For heavy-duty trucks:
- The traded-in truck must have a rating of 15 mpg or less.
- The new truck must have at least 1 mpg higher rating to get the $3,500 coupon and at least 2 mpg higher to qualify for the $4,500 credit payment.
Effects of the Program
Supporters of the program have argued that the program was a success because it provided a stimulus to the economy and replaced many fuel inefficient vehicles with more fuel-efficient vehicles that created less pollution. The program, supporters argue, removed about 700,000 fuel-inefficient cars from the road.
However, the program has been widely criticized by economists, as well as some federal government agencies and environmental groups. Many economists have called the program an example of the "broken windows" fallacy, which holds that spending creates wealth. They argue that the program failed due to hidden effects and unseen consequences and that it created a shortage of used vehicles, causing used car prices to surge and harming low-income people. They also argue that the program cost taxpayers $3 billion and that the program did little to stimulate the U.S. economy – even in the short run – because it helped foreign auto manufacturers at the expense of domestic manufacturers.
The National Bureau of Economic Research stated that the program's positive effects were modest, short-lived and that most of the transactions it spurred would have happened anyway. A study by Edmunds claims that the program spurred a net 125,000 vehicle purchases, costing taxpayers an average of about $24,000 per transaction.
The Bottom Line
Some studies indicate that the net effects on the environment were negative. Scrapping the traded-in vehicles required large amounts of toxic chemicals and disallowed recycling of parts in favor of sending them to landfills or smelters. In addition, the program brought future production of vehicles forward, using manufacturing processes that create pollution.