A "Clunker" of a Plan

Cash for Clunkers temporarily helped the automakers, but did nothing for consumers

Though the recent “Cash for Clunkers” rebate incentive sounded like a great idea, it did not stimulate the American automakers or help consumers.

The incentive program, formally known as the Car Allowance Rebate System (CARS), was signed by President Obama on June 24 as a means to facilitate car sales for Ford, General Motors, and Chrysler.

CARS was designed to allow people to save up to $4,500 toward the purchase of a new vehicle. However, there were many restrictions and guidelines for each type of vehicle being traded in and each type being sold.

The major issues with the so called “rebate” plan are not the cost of the vehicles themselves, but the incurred costs that automatically come with the purchase. The instant you drive a new car off the lot, it loses tremendous amount of value. A new vehicle depreciates as much as 35 percent of its value within the first two years off the lot.

One could argue that it worked great because they got a new car and saved money off of the total price. The problem is that the payments of a new car are obviously more than the payments for the clunker. Also, the buyer’s insurance premiums will skyrocket compared to what they were. Add it all up and people really did not save any money.

CARS required customers to trade-in their vehicles to be scrapped. Dealerships typically offer much less for trade-ins than if someone would have sold the vehicle themselves. The rebate is given to offset the trade-in, but the customer still takes a loss because he or she could have gotten more for the vehicle by not trading it in. The Obama administration may have been trying to help automakers and consumers, but the consumers were on the wrong end of that deal.

The purpose of CARS was to encourage consumers to stimulate the economy. However, the government forgot to tell customers it was the United States economy they were talking about stimulating. A Sept. 2 article from Forbes.com reported that 19 percent of vehicles purchased through the clunker program were Toyota models. I am so glad the government gave us a great savings program so that we could help Japan sell cars in our country.

The article also stated that August was the highest month of car sales nationwide through the first eight months in 2009. Hyundai, Subaru and Kia all had increases of at least 47 percent over August of last year, while Ford had a 17 percent increase.

Congress allotted $3 billion toward the program and when it ended on Aug. 24, it had used $2.87 billion, according to CARS.gov. The program was scheduled to end Nov. 1 or until funds ran out. Since the government knew that the funds would not last until then, they cut the program short.

I purchased a vehicle over the summer while cash for clunkers was still available, but I didn’t “take advantage” of the offer. I am all for being green and helping the environment, but CARS just didn’t seem to make sense to me. For now, I am perfectly happy with my six-year-old, four-wheel drive that gets 18 miles to the gallon.