There has been spirited debate on the Cash for Clunkers program. Recently on my Facebook page, I said that buying a new car is the equivalent of taking a $100 bill and throwing it out the window on your way to work at least once a week. Why? The average car depreciates about 45% over three years; that is why. Wow!
The Obama Administration has used the “green” theory to promote the merits of the program. One figure, in particular, continues to be used as a tagline in many reports. According to the New York Daily News, “The administration said fuel efficiency improvements on trade-ins will save consumers up to $1,000 a year in fuel costs.” Also, it has been reported that the fuel efficiency of the newer models is upwards of 60% better than the cars being traded in. That sounds like a decent savings, but when you compare that amount to the 45% depreciation of a new car, it becomes mighty clear that driving a clunker may not be so bad after all.
I am all for “greening” the planet. (After all, I work at a solar company.) However, I am not for the fleecing of Americans by putting the already financially stretched average American family into new auto loans and creative financing deals, all in an effort to jump start the auto industry. And, I am definitely against using tax dollars to subsidize the amount paid for a car to families and individuals who are strapped financially.
There are many who believe is this a great idea and wonderful way to rejuvenate a struggling industry. I disagree.
First, the Obama Administration is creating false demand for a product. True, many of these older model cars being traded in now would have most likely been traded in later; but at a much steadier pace. By creating this incentive to do it all at once, car sales are likely to plummet after the discontinuance of the program. That will hurt the auto industry further. This program is putting a Band-Aid on broken arm; thus the underlying problems in the auto industry remain.
Second, this program mandates that the older cars are destroyed. The argument is that these cars are so inefficient that destroying them would be better for our environment. However, the fuel efficiency for the newest cars (models 2007 and above) are only a few miles per gallon off of the fuel efficiency for older cars (models dated 10 years and more). A 2009 Chevy Impala gets 23 mpg. A 2000 Chevy Impala gets 22 mpg. In almost 10 years, there has only been a one mile-per-gallon improvement in fuel efficiency for the same make and model ca–hardly recognizable change when it comes to filling up a tank. Also, instead of destroying the old cars, many of the reliable ones could have been donated to local charities for struggling families in need of a reliable vehicle.
Overall, this program is reminiscent of the housing-market lending practices before the big collapse of real estate. Sure there are deals to be had, but at what price to the auto industry, the economy and the average American?