Clunker credit isn’t a windfall for car buyers
The “cash for clunkers” bill passed the House yesterday, so it’s time to take another look at this badly designed legislation. We’ve already explained why it’s poor environmental policy and ineffective economic policy and why it will hurt the poor. Now, with the help of The Cheapskate Blog, let’s examine what the clunker credit does for consumers.
The answer: not much. Cheapskate’s Brad Tuttle writes:
It’s not clear how the trade-in will affect the purchase price of your new car. Even after you’ve got the e-voucher ready, you’ll still have to negotiate with your car salesman for your new ride. And there’s no saying how this will change the negotiation process. Buying a new car gets more complicated when you’re trading an old one in, and it seems like the “cash for clunkers” deal will complicate things further.
Tuttle also notes that not every ancient heap will qualify. It must be drivable, less than 25 years old and covered by insurance for the past 12 months. It also must get less than 18 miles to the gallon, and you must buy a new car that gets at least 2 mpg more.
Also, if your gas guzzler is worth more than the credit ($4,500, at most), you wouldn’t benefit. That means we won’t be scrapping many late-model Hummers. My guess is that folks who are cheap enough to drive a clunker probably won’t take advantage of the credit unless it significantly overvalues the car. They know they’ll be burdened with sales taxes and financing costs, and will own a new car that depreciates as soon as you drive it off the lot.
That’s not to say the bill won’t stimulate car sales. It will, and it may make bailed-out Chrysler and General Motors a little healthier, temporariily. Most likely, the trade-in incentive will merely move up some people’s car-buying timetable. Sales are likely to drop sharply whenever the credit expires.
As Freakonomics author Steven Levitt predicted last year, the bill also may create a boom for some fix-it shops. Levitt wrote:
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.
(4 votes, average: 3 out of 5)
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David Nicklaus has covered St. Louis business for more than 25 years. His column appears three days a week on the Post-Dispatch business page. 
Any half-way intelligent car buyer knows to negotiate the price of the new car before even mentioning a trade. If the buyer negotiates a firm “cash” price for the car without mentioning the trade, the voucher will not have any effect on the negotiation process. While the program may well be poor fiscal and environmental policy, Mr. Tuttle’s complaint is a non-starter.
This fiasco of an idea was trotted out in California earlier, and even threatened to destroy specialty cars that would be of interest to restorers.
I can just see poor people who can barely afford insurance and gas for an old “beater” rushing out to buy themselves a new $25000 Obamamobile.
I guess the folks in Washington who ride around in limousines and armored Suburbans have a hard time relating to a ‘98 Cavalier or an ‘86 Cutlass.
I’m against this “cash for clunkers.” However, I’m not against people taking advantage of the situation, but this situation would not exist if I was the leader. How do we replace the leaders in Washington? I’m sorry to say that things will get worse in this country before they get better. There is no way we will eliminate the total federal deficit as social programs and government continue to expand and try to justify themselves. The dollar will fail first along with the entire fiat world monetary system, which I expect will create a major worldwide depression beginning in late 2019 and I have been predicting this date since 1997 to my friends. Around that time, watch out for the government taking private lands and imposing martial law.
Whats with the car insurance stipulation? It’s a clunker and its probably not worth the cost of auto insurance anyway. Having to buy expensive auto insurance for a whole year, just to sell an old car is totally ridiculous. More and more government regulation on the cash strapped, economic poor persons.
I agree that it may temp. stimulate car sales but won’t fix the problem long term, just like the $8,000 tax credit to buy a new home won’t fix the housing problem long term. What happens to sales when these credits go away?
Americans need jobs or feel secure in the job they have and until that happens these are all just band-aids on wounds that need stitches.
We need to concentrate on creating jobs within our borders and I would start with GM and Chrysler. Move the jobs from Mexico and Canada back within the borders. There is a huge facility in Fenton with ONE BILLION DOLLARS of improvements just waiting for a tenant.
First, why is it called “cash for clunkers”? It has nothing to do with getting rid of clunkers and everything to do with getting rid of gas guzzlers.
There is no mention of the voucher or credit being affected by the value of the trade in. The way I read this, it is the government paying people to get rid of their gas guzzler, with the bigger the move from guzzler to miser being rewarded with a bigger payment. Also, the Senate version of the bill includes the purchase of fuel-efficient used cars. This negates many of the remaining criticisms.
Finally, if this bill won’t do much of anything, then why worry about it? If few people will be able to take advantage of it, then it won’t cost us anything as taxpayers. On the other hand, it may well help get some gas guzzlers off the road. And I can’t imagine anyone not tied to the oil industry thinking that a bad thing.
Won’t this drive the price of “used” cars up? Why sell the car to a friend who will fix it for himself, when you can turn it in to the gov for so much more. This will eliminate the person to person sale, right?
The insurance requirement I think is to try and avoid the fiasco that happened in California, where people raided junkyards and towed the cars in. I guess showing you’ve paid insurance on it for one year avoids that, maybe. I still think this won’t have the benefit they are anticipating and will still have more abuse than they anticipated
This is just another example of the Obama-socialist movement intrusion into the free markets. Know-nothings will think the government program is another welfare/give-away and jump before they see all the typical Obama strings………I am surprised it doesn’t come with a voter registration card requirement……oops! I see an amendment coming soon.
doa70,
With the max being $4500.00, which I hear will be hard to come by and where the average will be about $2500.00 and not $4500.00, they are truly talking about “cash for clunkers”.
I’m all for any program which benefits actual people, not just corporations. I read where the car has to have been insured for the past 12 months, which will avoid people dragging in wrecks. With this, I may actually be able to afford a new car. It would be nice for a change not to buy a car and immediately have to sink money into maintenance. My last used car purchase needed almost $2000.00 worth of work (timing chain, water pump, etc) within a month of purchase. Oddly enough, I probably still won’t be able to afford an American car. The Ford Focus is still more expensive than the Kia Spectre,