Analysts: There's no guarantee that Cash-for-Clunkers will really drive car sales
Now that the so-called Cash-for-Clunkers bill is ready for President Obama's signature, attention is turning to how much of an impact the negotiated bill will actually have on U.S. car sales. There are a lot of positive stories about the bill floating around – headlines hopefully implore that the bill might "jumpstart U.S. auto sales" and claim "Has Uncle Sam got a deal for you." But will the law, with its fairly tight requirements, really stimulate sales? Some auto analysts don't think so.
Four analysts interviewed by Automotive News estimate that only 70,000 to 200,000 more vehicles will be sold because of the clunkers bill. According to the detractors, there are three main factors that will likely blunt the bill's impact:
- It's just four months long – the law will only offer cash for your clunkers from July 1 until November 1.
- While the bill requires the new vehicle to be more fuel efficient than the one you're trading in, the 18 mpg limit on the old ride (details here) doesn't encompass nearly enough vehicles.
- The economics of the law don't make a lot of sense in the real world. If you're driving an eligible car, then chances are that you can't afford to purchase a new vehicle right now – even if you can get a $4,500 federal credit on the price. More often than not, it makes greater sense to just buy a used car.
Photo by KB35. Licensed under Creative Commons license 2.0.
Reader Comments (Page 1 of 3)
Sea Urchin 4:11PM (6/22/2009)
How should i put this, Duhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh
All it was and is a big pork spending bill that was pushed by the auto industry on the taxpayer, because 100 Billion wasn’t enough for them. Up next, the ethanol fiasco.
What is happening in Iran needs to happen in USA.
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geo.stewart 6:28PM (6/22/2009)
Hyundai's 'duh!' commercial comes to mind
Rob 8:37PM (6/22/2009)
ATTN AUTOBLOG: Considering this bill only affects cars made after 1984, how about you don't keep showing cars from the 50s and 60s whenever it is mentioned? Eh?
Bobmarley 4:12PM (6/22/2009)
the third point is very true...I kinda feal like I could fall into that exact situation. I may need a new car in the next year or so and this bill is tempting me to buy a newer car/spend more than I was planning
"The economics of the law don't make a lot of sense in the real world. If you're driving an eligible car, then chances are that you can't afford to purchase a new vehicle right now – even if you can get a $4,500 federal credit on the price. More often than not, it makes greater sense to just buy a used car. "
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Nightcrawler 5:53PM (6/22/2009)
I have a qualifying car and I can afford the purchase price of a new car. There are some of us cheapskates out there that keep driving an old car (because we a cheapskates) and have enough money to buy a new one (again, because we are cheapskates).
Actually, I'm not enough of a cheapskate that I would be driving my clunker if it was my car. But it was good enough to get my college aged son around, and now I can hand him down my current car.
Jeff Johnson 4:13PM (6/22/2009)
when has anything the government done "made sense".
This might spur auto sales in the SMALLEST of ways, but all it's doing is putting America deeper into debt. You can't buy a new car for $4500, you can get something used, but that opens the door for someone getting stuck with something unreliable. It makes little sense to me to take a PERFECTLY good car that might be a little old, but runs and is reliable and crush it into a cube "for the environments sake". That +5mpg is not going to save the planet, and the sooner people realize this the better off we will be.
When you boil it down this is just a piece of legislature that will make someone do something they would otherwise NOT do. Even after decades the government seems to think more legislature, more intervention, more control is the way to get things on track. I seem to remember this country being founded on the principal of free market choices, and government NOT sticking it's nose (and our money) where it does not belong. Why does everything these days involve the government throwing bags of money at people?
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Smegley 4:14PM (6/22/2009)
Why is it Congress can't even give away money right?
It's not like they don't have sufficient practice at it.
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Dustin 4:22PM (6/22/2009)
"Analysts" are needed to use the phrase "There is no guarantee"?
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P.V. 4:27PM (6/22/2009)
People only recognize anything if it comes from a higher authority, it seems.
Anyway, I wholebrainedly agree with all of the points explained; also, I would add that, if anything, this would only stimulate further consumption of import vehicles as the perception persists (despite domestic companies' best efforts to counter this) that imports are more fuel-efficient, so people will trade in their clunker for a less fuel-efficient Camry (versus, say, a Fusion) without thinking twice.
Polly Prissy Pants 4:51PM (6/22/2009)
Last I heard, cash for clunkers made a pretty big impact when it was implemented in Europe. And for the record, there's no guarantee that wearing sunscreen will prevent you from getting skin cancer.
BigWill 7:35PM (6/22/2009)
"cash for clunkers made a pretty big impact when it was implemented in Europe."
Except, of course, leave it up to the idiots in Washington to screw it up then spend more money on lobbyists and consultants to figure out why it didn't work the same way it did in Europe.
In Germany, for example, the trade in requirements were less stringent. The car had to be at least 9 years old and you had to buy a car that emitted less C02/km. Add in the fact that Germany is about to impose a carbon emissions tax this summer that can ding your wallet fairly hard, and you've got a genuine incentive to get a car that emits less C02 - and likely gets better gas mileage as well. The US version excludes a lot of vehicles, i.e. a lot of owners will be surprised to find out their cars aren't considered clunkers by the US Government.
What Germany probably didn't intend (and Congress is about to find out) is that the money didn't go to domestic manufacturers. Last I checked, only ~25% of the money went to German manufacturers; the rest went to Hyundai, Renault, Skoda, Kia, and assorted others.
TKOsoccer03 4:23PM (6/22/2009)
Well, I will be taking advantage of this, for sure. My current ride qualifies, and the deal is already drawn up on an '09 Fusion. As soon as the funds are available, I'll be picking up my new car that the Ford dealership is holding (for $500).
But I am not surprised at this at all. The restrictions are way too tight. A lot of the old cars out there get far better than 18 mpg combined. In terms of an old vehicle, only the old trucks and SUVs will qualify.
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J 7:07PM (6/22/2009)
Further, there are a lot of cars that once got 25-35mpg that have fallen into disrepair and don't get nearly that anymore. Those cars should somehow be covered.
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Nightcrawler 9:51PM (6/22/2009)
Nah. It would be totally unworkable to prove how bad the mileage actually is on your particular clunker. And even if they did have a way to judge a cars actually gas mileage at the moment, it would be a relatively simply matter for the mechanically inclined to mess up any car bad enough that the gas mileage would be terrible so it would qualify as a clunker.
John 4:29PM (6/22/2009)
Automotive News' analysis is exactly on the money. Unless you happen to have a spare car lying around in a field that meets the requirements, or you get way in over your head on payments on a car loan (I thought we were supposed to regulate away irresponsibility, not encourage it?).
Case in point. I have a 1991 Sunbird that I parked 2 years ago, that I just haven't gotten around to getting rid of (too much trouble for a car with so much broken on it). I'd love to get a Challenger R/T, and the $4500 would drop the price to a reasonable range for me (not that I'd take the $$). But A) the sunbird got more than 18 mpg when new (now it would be lucky to get that going downhill in neutral) and B) the Challenger's gas mileage, well, there's my point.
If this was really about selling new cars, it would be an across the board credit for any vehicle, like a push/pull/drag trade-in sale at the local used car lot
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mr.ed 4:59PM (6/22/2009)
The car traded in has to have been licensed and insured for the last twelve months. No junkyard maidens. This leaves out my buddy with a yard full of jalopies. And probably you, too. This will help clean out the leftover excess inventory of '08s and '09s. Yes, there are plenty of last year's models hanging around. I've bought the last three vehicles as leftovers with huge discounts, from $4-7k off before the real dealing started.
Kumar 4:38PM (6/22/2009)
So what's the deal, nobody on this site has more than 1 car in their garage? I can't be the only person that doesn't replace cars at the same time.
I'm one of the 'few' that can take advantage apparently. Second car is a clunker and I need another more reliable vehicle, and would like a diesel.
Will probably get a VW tdi wagon, and take advantage of green credits as well as the above-line federal sales tax deduction for this year. So I'm looking at $4500 + $1300 + $700 ($6500) coming off the top of a car that doesn't get incentives for a car that's worth < $3000. Will I pick up a monthly payment? Of course, but tdi's in the used market are pretty pricey too, and my rusting clunker of an SUV is living on borrowed time. ;)
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tomguptill 7:44PM (6/22/2009)
So if your current car is worth say $3000, your $4500 really becomes $1500 - if you take the federal credit, you lose the tradein value of the car which you would have gotten anyway.
One thing this plan will probably do is cause the dealers to remove all of the incentives from their fuel efficient cars and put them onto their less efficient ones that don't qualify for the rebate money.
Although VW doesn't do it that way (they're not big on incentives), you could end with something like this:
- Joe has a car worth $3000, which qualifies for plan.
- Dealer has $20,000 car with $1500 incentive on it, which qualifies for plan and would get Joe the full $4500 rebate.
- With no plan, Joe would get $3000 for his trade, and $1500 incentive, paying $15,500 for the car.
- Plan goes into effect. Dealer cancels $1500 incentive on fuel-efficient models.
- Joe gets $4500 credit, pays $15,500 for car.
CarGuy 4:36PM (6/22/2009)
Had to register for the site to second the "DUH!" sentiment.
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KazO 4:37PM (6/22/2009)
Point #2 (MPG upper bound) is what'll keep my parents from being able to participate. They want to buy a new Fit, but their old car is a 95 non-turbo Eclipse, which is 23 combined NewMPG (26 OldMPG). Even the most gas-guzzling car they owned (93 DIamante wagon) was 19 NewMPG. Yet there is that separate set of truck -> truck rules, so it's not exactly like the bill is targeting getting Suburbans off the road.
Your Tax Dollars At Work.
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