Why Cash for Clunkers Could Devastate Auto Sales

The end of Cash for Clunkers

The end of Cash for Clunkers

Cash for Clunkers is over.

More than 625,000 vehicles were sold as a result of the program, so I can’t imagine anyone who wanted to take the government up on its $4,500 offer missed out. Needless to say, the Cash for Clunkers program was hugely successful at luring people into dealerships to buy new cars.

But without the program, what happens next? Who will buy new cars now?

Well, guess what – I have a prediction: Auto sales will languish once again, and dealers will have one heck of a hard winter trying to sell enough cars to keep their heat on. The recovery of the auto industry will probably take even longer than it would have had the government just kept their hands off.

I don’t think Cash for Clunkers actually increased auto sales, I think it condensed auto sales into a single month. Which means the next few months are going to hurt for dealers and auto manufacturers.

Americans just binged on buying cars. The binge made us feel good. It gave us a sugar high of sorts that quickly spread across the country, resulting in even more binging. Now comes the big crash.

The fact that Ford, GM, and Chrysler all increased production of fuel-efficient vehicles made popular by Cash for Clunkers, combined with no more government assistance for consumers, means we’ll soon see an overstock of cars on dealers’ lots with no one to buy them.

Somehow dealers are going to have to lure people into their stores without powerful rebates, and we’ll be right back where we started.

Was Cash for Clunkers worth it?

-tgriffith

5 Comments

  1. I must admit that I initially agreed with your opinion, however Anonymous does have a point; not everyone qualified for that program and so the condensation of new car purchases may not be as bad as we think.

    Yes, the program may actually damage used car dealers, repair shops and taxpayer, but with the economy and the auto industry in the toiler something had to be done. At the end of the day, someone has to do something… and while not perfect, hopefully it has helped our general economic malaise.

  2. Destroying over 625,000 cars, many in good condition, is an extreme waste. Those cars could have been sold or given to the poor through car donation charities.

  3. You may have heard of the government’s new “Cash for Clunkers” program but do you know all the facts?

    Friday, August 21, 2009 Update: Informed sources are projecting that the total $3 billion directed to Cash for Clunkers will be fully expended by Monday and the program will be winding down at that point. Some projections indicate that 700,000 new car sales, including a Cash for Clunkers component, are on the books or will be by Monday. There’s some talk of more funding for Cash for Clunkers, but with congress out of session until after labor day, that can not be immediate. Naturally, it will be some months before the car dealers themselves are fully reimbursed for qualified Cash for Clunkers purchases through the program.

    Proponents call it a win win for the environment and the economy and the charities we represent indicate that a slow down in car donation proceeds (if any) has not been as severe as some had initially projected. Volume of car donations for us has been flat and a modest 7.5% decline in gross resale prices of donated cars seems to be the average.

    Cash for Clunkers (the Car Allowance Rebate System act, also known as CARS), was recently passed by congress and signed by President Obama. It is an innovative new program designed to get gas-guzzling cars off the roads and motivate people to drive more fuel efficient cars. It is intended to replace older vehicles with new ones that are safer and pollute less. Supporters claim it will help jump-start auto sales and the U.S. economy, while also providing environmental benefits and increasing energy security.

    How it works: to be eligible for $3,500 or $4,500 worth of federal money (some terms vary for trucks).

    * Your vehicle must be less than 25 years old on the trade-in date
    * Only the purchase or lease of new vehicles will qualify you for the federal funding
    * Trade-in vehicles must get 18 miles or less per gallon
    * Vehicles must be in driving condition, plus registered and insured for the full year prior to the trade-in
    * The bill is intended to be a boost to struggling car dealers and anybody who wants a new compact or hybrid, and to help the environment, and who wouldn’t support that? Unfortunately, this legislation won’t help everyone. Here are some reasons that will prevent many people from taking advantage of the Cash for Clunkers program:

    The gas mileage rates are so low that only very poor mileage cars like SUVs or trucks will qualify. Those who do qualify have to buy or lease a new car to get the money; just getting rid of an old junker gets you nothing with Cash for Clunkers. If the value of your trade in is more than $3,500 or $4,500 then you don’t get any additional money from the government.

    The Cash for Clunkers legislation, as originally written, covered “approved” clunker vehicles for new car purchases from July 1st to November 1, 2009. For technical reasons re-determining what cars would qualify, the start date was subsequently delayed from July 1st to July 24th. Car dealers and legislators were all very surprised at the huge initial response such that by midnight, July 30th, the program was halted given the projection that the initial one billion dollars of funding had been all used up by vehicle purchases that are already in the system. The House of Representatives acted very quickly and the next day, July 31st (the last day of the congressional session prior to the August recess) passed a two billion dollar refunding of Cash for Clunkers. The Senate, with the same extraordinary speed, passed the same bill, Thursday, August 6th barely a couple hours before they also went on summer recess at midnight. Now, President Obama has signed it and the program can be restarted very soon. Stay tuned to this site for breaking news on this topic. Some proponents suggest that even with the additional two billion dollars in funding that the program will again run out of money long before November and that additional funding should be provided.

    Fortunately, if you don’t meet all the criteria for getting the Cash for Clunkers payout, you still have other good options for getting rid of your old car. Vehicles that don’t qualify for Cash for Clunkers are still ideal car donations. When you donate cars, trucks, vans, RVs, boats or even real estate you get rid of your unwanted property, help a non-profit of your choice, and itemizing taxpayers get a write-off.

    Hundreds of charities do invaluable work all across the country, and car donation funds are an important part of their revenue stream. Pete Palmer, co-founder of The Vehicle Donation Processing Center, Inc., states that his company “assists more than 400 charities who do great work and depend on car donation to pay for it. We handle it for them and in so doing we’ve put more than sixty million dollars in their hands — net-net, after all expenses were paid. Every penny of that sixty million dollars went to charities for their charitable missions.”

    Now during tough economic times many people want to take advantage of every opportunity for a little extra income, however some Cash for Clunker qualifiers might find the extra dollars are outweighed by other benefits of donating a vehicle to a charitable organization via one of the reputable car donation organizations.

    * You will feel good about helping a worthwhile cause
    * Some car donation companies offer free vehicle pick-up
    * Many will take any vehicle, running or not
    * Plus the tax write-off for itemizing taxpayers.
    * And to thank you for deciding to donate your car to charity, instead of participating in the Cash for Clunkers program — when you donate your car to one of our 400+ fine charities — just tell your operator you’d like the $300 Free Grocery or Gasoline Rebate when you make arrangements with us for the free car donation pick up.

    A vehicle donation political coalition is reaching out to Congress to get a bill passed that makes car donation even more attractive. The passage of U.S. House of Representatives Resolution 571 will help the situation by reinstituting some of the tax benefits for vehicle donation to charities which were withdrawn by Congress in 2004. Accompanied by the economic downturn, those limitations have resulted in an average 52% reduction in vehicle donations according to industry sources. Currently, taxpayers are only allowed to deduct the fair market value up to a maximum of $500 or what the charity sells the car for, whichever is greater. Under HR 571 taxpayers would be allowed to ascertain and deduct the Fair Market Value up to $2500 for their car donation, and the appraised value over $2500. As of the end of June this bill is showing promise and has been co-sponsored by twenty Representatives from both sides of the aisle and every region of the country.

    It’s important for the public to realize that Cash for Clunkers is not the best answer for everyone. Learn more about Car Donation and charities it supports.

  4. In the end, Cash for clunkers may have encouraged some people to buy a new car who otherwise may not have. That minimal benefit came at the expense of used car dealers, auto repair shops, auto parts stores, car donation charities, taxpayers and the poor.

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