Some of you may remember that as a follow-up response to the 2008 financial crisis, in 2009 Congress passed the Car Allowance Rebate System (CARS) Act, colloquially known as Cash for Clunkers (and here we are again). The idea of stimulating the economy by putting money in people’s pockets that they had to spend – in this case on new cars – is similar to fiscal stimulus plans that Congress has passed in its recent efforts to help the US economy in response to the Covid-19 pandemic and the resulting shut-down.
After several cash-direct-to-taxpayers and other stimulus bills were enacted recently, a few auto manufacturers are pushing Congress to enact a new iteration of the Cash for Clunkers program — and quickly.
There were at least two versions of the 2009 bill. The idea of all such bills were:
- Get people to buy new vehicles, thereby spending money.
- Get old and decrepit vehicles off the road.
- Improve overall fuel economy, reduce air pollution and cut back on carbon dioxide emissions which is one of the main drivers of global climate change.
The more stringent of the two main bills proposed by legislators targeted cars with the worst fuel-mileage and also aimed to help a larger portion of folks in lower economic strata. The bill that actually became law was less stringent both in its environmental impacts and its economic reach. It aimed primarily to take vehicles with average fuel economy of 18 mpg or lower off the road. The average trade-in allowed for a clunker was $4500, to be used toward the purchase of a new car.
Very old vehicles were excluded from the program, and provisions were made to make sure that vehicles traded in under the program were not resold and not allowed to reenter the used vehicle market. Among other provisions, for example, was one that forced the dealership that took in the trade to essentially destroy the engine so that neither it nor its components could ever be sold on the scrap market. The main hulk of the vehicle also had to be crushed, though undercarriage, front end and drive-train components (excluding the engine) could be removed and sold on the scrap market.
Initially this program went into effect in July 2009 with 1 billion dollars budgeted for it by Congress. It proved popular and the 1 billion dollars were quickly exhausted, so after a month, Congress budgeted another 2 billion dollars. By the end of August 2009 all funds were used up and the program ended in November.
In subsequent years a number of economists studied this program (and other similar ones in the rest of the industrialized world) for its effects on the economy. It turns out that although many new cars were sold during the program, nearly half would have been purchased anyway without it. As for longer term effects, there are studies that indicate car sales dropped off significantly within a few months. Other negative effects of the program:
Independent repair shops lost a significant work-load as older vehicles were disposed of under this program.
- Poorer people with truly decrepit cars did not qualify or could not afford the new cars anyway, regardless of the cash rebate.
- Charities which accepted clunkers and resold them to fund their operations lost part of the stream of old cars coming their way.
The currently proposed Cash for Clunkers plan is being vigorously opposed by the Automotive Service Association (ASA). The organization, primarily representing the interests of independent automotive repair shops and technicians, is asking its members to contact their legislators and urge them to oppose the passage of any version of Cash for Clunkers. They believe that such bills are “job-killers”. Instead they want a “stimulus bill that will reinvigorate the entire automotive industry and establish policies that take into account the jobs and economic impact of independent automotive repair facilities and the aftermarket.”
The position of the ASA is spelled out in a press release posted on 4 May 2020:
Or, the link to reach out and voice your opinion directly to the members of congress regarding the new Cash For Clunkers: http://cqrcengage.com/asashop/app/write-a-letter?4&engagementId=507844
Thoughts on the topic? Reach out, we’d love to hear what you think.