The Cash for Clunkers, or Car Allowance Rebate System (CARS) program, aimed at boosting auto sales in the U.S., is stimulating a rush of new economic activity in the automobile market although industry analysts warn that the boom could be short-lived. In a dual purpose scheme designed to help out a depressed auto industry and clean up air pollution at the same time, the CARS plan offers incentives up to $4,500 to auto owners who trade in their old vehicles for new, more fuel-efficient models.
Program participants must prove they have owned, registered and insured a car continuously for one year that was rated at 18 miles per gallon or less in combined city/highway driving. The U.S. plan is modeled after similar programs in Europe which have enjoyed some success, although critics in the U.S. claim the program only temporarily speeds up purchases that would have eventually been made anyway.
The first $1 billion allotted for the program was devoured in one week by hordes of car-buying consumers. Congress responded with an additional two billion dollars and is now considering whether or not they will dump more funds into the program later. While not everyone in Washington is completely behind the program, most democrats say they would like to keep it going, and many republicans say they agree. New automobile dealers say their customers are showing huge interest in the program with far more show room visits and greatly increased Internet traffic. Even if the program does not continue, the current flood of new auto sales is helping dealers get rid of their old inventories and encouraging manufacturers to build more new cars.
Ford, GM and Chrysler have seen big boosts in recent sales figures due to the CARS program, and the import manufacturers have also done quite well. The Ford Focus, Toyota Corolla, Honda Civic, Toyota Prius and Toyota Camry have been the top five biggest sellers since the program began on July 25th.
Observers say the Clunkers program has proven to be a successful short-term stimulus strategy by increasing consumer spending in the third quarter, but there remains a real question as to whether or not the increased in business will continue on into next year. Analysis of dealer’s web sites shows that the increased activity peaked the second day after the program was launched and has fallen by over 15% since then. If interest in the program continues to wane, it’s predicted new auto sales could return to pre-program levels by the end of August.
Not everyone is a fan of the Clunkers program. Some critics have said the air-pollution benefits were not as great as they could have been because the fuel mileage requirements for the new cars to be purchased were not set high enough. Others have complained that the program rewards those who have ignored environmental concerns and purchased gas-guzzling cars and trucks in the past.
The jury is still out on whether or not this form of government subsidy will have a lasting beneficial economic effect beyond perpetuating the cycle of borrowing and spending. That it has successfully stimulated an industry that was in the doldrums is quite clear, as dealer inventories are shrinking nationwide. Supporters of the program are holding on to hopes that the increase in the car business might translate into an increase in all business for the U.S. economy.
For now, the Cash for Clunkers program is alive and well until the money runs out. For people with program-eligible clunkers sitting in their driveways, today could be the best time ever to buy a new car.
Cash for Clunkers Program Rules:
- All vehicles purchased must be new 2008, 2009 or 2010 models.
- All vehicles purchased must not cost more than $45,000.
- All vehicles must be purchased before November 1, 2009.
- Motorcycles are not included in the program.
- All clunkers must be in drivable condition.
- All clunkers must have a clear title without liens.
- The owner/seller of all clunkers must be same person purchasing new car.
- Fuel mileage of all clunkers must be calculated according to EPA mpg ratings at fueleconomy.gov.
