Cash For Clunkers

A new economic stimulus program in the United States was unveiled earlier today which has been called the “Cash For Clunkers” program. It is designed to give up to $4500 to consumers who trade in gas guzzling cars towards purchasing a fuel efficient car.

If you have a car that has been insured at some point in the last year, and is not older than 25 years, and currently achieves less than 18 miles per gallon (combined highway/city) you can turn it in and receive a voucher worth either $3500 or $4500 towards a new car purchase. If the new car gets 10 miles per gallon MORE than your old car, you get the $4500. If the new car gets more than 4 miles per gallon MORE but less than 10 miles ger gallon MORE than your old car you get $3500.

$4 Billion has committed to this endeavour for a period of one year (but note that it has passed the House vote, but has yet to be passed by the Senate), which means the government could be stimulating sales of one million new cars. US auto sales in total were 16 million in 2007, and 13 million in 2008 (source: MSNBC).

Preet Banerjee
Preet Banerjee
...is an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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Showing 9 comments
  • Four Pillars

    Wow, that’s a lot of money for a clunker. They are giving money away down there – I need to write about that…. :)

  • Patrick

    That’s a pretty big incentive to “clunkerize” your existing vehicle. Would it be considered fraud if someone were to, say, remove a spark plug or two to make their existing car less efficient?

  • Thicken My Wallet

    I thought the U.S. government already had a clunker program. Wasn’t it called the take over of GM?

    On a more serious note, did someone forget to tell me that money was going out of style? How much more stupid money and debt is the U.S government going to incur? I am not sure a fiscal policy of going broke to try to stimulate an equally broke consumer works well in the long run.

    All you are doing is throwing a life-line to a drowning person who may drag you into the water as well.

  • Ink-Stained Gorilla

    I’m curious to know what the economic fallout from this will be if it was ever implemented. Like all things, the bill will come due. It’s a question of who will pay it and where the costs will be offset?

    Still, that’s a lot of money for a used vehicle. Is is time to arbitrage old pick up trucks with a market value less than $3000?

  • Xenko

    “Would it be considered fraud if someone were to, say, remove a spark plug or two to make their existing car less efficient?”

    They will, I am assuming, be using the Federally tested mpg ratings for a specific make/model/year, and not testing each individual car.

  • Preet

    @Four Pillars – it’s a free for all down there!

    @Patrick – yeah, I would peg that at fraud. I would guess they would use the EPA ratings.

    @Thick – great analogy!

    @Ink-Stained Gorilla – oh man… :)

    @Xenko – as above, that makes more sense and is objective.

  • Patrick

    Ok, so all that’s left is the moral hazard of rewarding people for buying gas guzzlers. What about the poor sucker who bought a civic instead of a minivan ten years ago because he was concerned about the environment? (I’m not thinking of anyone in particular of course…)

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