The numbers just don’t seem to add up.
The “Cash for Clunkers” program gives roughly a $4,000 subsidy when a person trades in a clunker for a new car that gets better gas mileage.
Congress set aside $1 billion to fund the program. If all of that money was going to pay these subsidies, there would be enough money to pay for 250,000 clunkers.
The program went into place on July 24th. One week later, the program was said to be out of money.
In 2006, before the current ills of the automakers, the average number of new cars sold in a week in the United States was 125,000.
So if you believe the numbers, sales involving clunkers as trade-ins last week represented more than two times the weekly sales of new vehicles when the industry was healthy.
Maybe that is possible, but something just does not smell right to me, especially because at the start of the week no one seemed to be worried that the Clunkers program would run out of money (especially not me!), so there was no reason to rush out and take advantage of it.
and 
. You can also watch it on 
Junkyards don’t want these cars — the engine is the profitable part for them, and the engines have to be destroyed at the dealership. By law, all these cars are good for is scrap metal, and that’s hardly worth the expense of hauling away from the dealer and stripping the non-metal parts.
I had breakfast with someone this morning who is a accounting manager for a local dealership that has four lots. He said the paperwork is tremendous. They sold about 120 new cars a week compared to 400+ used cars.
Also the cars are not necessarily crushed. The drive train must be disabled by the dealer but the body can be wholesaled off for parts.
I agree with what all of the folks above said
I’d like to add that I’ve heard Congress intends to add an additional $2 billion to the program, and I have to imagine they plan on that money lasting a lot longer than eight days (which is how long it’d last if it were consumed at the same rate). I think we’re looking at a sort of glut of built-up demand, and when all is said and done the overall effect of the program isn’t going to look out-of-whack.
I’ve kept up with your previous posts on the program, and I think that as implemented the program addresses many of the concerns that you had. I also disagreed with you strongly when you stated that few cars would qualify, and I posted a couple of examples of vehicles which qualify, are worth less than $3500 as trade-ins, and could realistically be owned by middle-class families who could afford a newer car but might not spring for one ’til Cash for Clunkers popped up.
M.B. – Do you even know the requirements for the trade in? Do you know that production in auto plants is decided upon months in advance? No, you evidently don’t.
But we’re all better off when an uninformed naysayer says nay.
You’re also not accounting for pent-up demand.
The frugal folks that drive “clunkers” may have resisted purchasing a new vehicle as a conservative measure due to economic uncertainty. Or just as likely, they aren’t customers that normally purchase new vehicles.
With the gov’t and manufacturer incentives you can get a new vehicle (and full warranty) at prices closer to late model used prices. The program seems to be pushing at least some of these folks to take pull the trigger on the new purchase, as this seems to be a “once in a lifetime” opportunity.
Some of the early data seems to support this, for example purchasers from the “clunker” program are tending to have better credit than average.
Are a politician’s lips moving?
What about the possibility of pent-up demand, especially since this program was announced months ago. Anyone who has been planning to buy a car for the past 3 months likely has not bought one in anticipation of this program, provided they had a clunker-worthy vehicle. I’m assuming its hard to analyze this based on the fact that sales figures are weak anyway, but this seems like a plausible explanation to me, especially when you add in any other increases in demand based strictly on the program.
Even if dealers took orders before the door opened, this does seem questionable. It also seems amazing that the fed. government would be able to process these subsidies so quickly to even know how much has been used up in this short time. This is a brand new program that required entirely new rules and data tracking system.
I think before we rush to throw another $2 billion at the program, we should sit back and think through how this could be modified to be more targeted and effective. Are people exploiting a loophole in the program? Are rich people using this more than poor? are the cars being brought in really cars that are in use? Would a smaller subsidy be just as effective? Is there away to encourage the purchase of American cars? Who is benefiting – the car buyers or the car dealers?
The policy wonk in me thinks it is a bit premature to just give it another $2 billion. While there was some pent up demand, I suspect that this $2 billion would be gone in no time and that the need is large, a huge number of people need new cars and are driving old ones. How can we get more bang for our buck?