Cash for Clunkers- How genuine is its environmental initiative

The U.S. introduced federal Cash for Clunkers (C4C) program as the U.S. Car Allowance Rebate System (CARS). It offered consumers rebates up to $4,500 to encourage them to buy or lease a more environmentally friendly vehicle for a less fuel-efficient car or truck trade in.
The program was very popular when it started in late July and quickly burned through its $1 billion in funding, and Congress approved an extra $2 billion.

The C4C/ CARS program was intended to:

  • Energize the economy
  • Boost auto sales
  • Put safer, cleaner and more fuel-efficient vehicles on the nation’s roadways

How genuine is CARS in achieving these objectives:

  • CARS has failed the genuine environmental initiative: The environmental and economic logic of providing incentives for clunking still with several years of useful life sounds dubious.
  • CARS won’t help struggling car manufacturers that produce larger, more expensive and often polluting vehicles; the auto industry was primed for a revival over the next two years with or without government help
  • CARS was only a transfer of $3 billion from taxpayers to automakers: the government’s auto revitalization program gives away up to $4500 for new cars and a handful of car buyers gained
  • People are paid thousands of dollars for cars they might have bought later this year anyway
  • C4C would not benefit the Big Three: People should not be paid to destroy working capital, This would be costly for the taxpayer and fuels an overproduction of cars, distort competition between sectors and delay the restructuring of the automotive sector
  • The program seemed stacked to encourage more SUV purchases
  • C4C increases prices: In January cars were at their lowest-ever prices in real terms due to the recession and oversupply. Following C4C scheme and depreciation of the dollar and by the need to recoup some of the costs of $4,500 grant car prices have increased
    • Political economy: Most of the purchases would have been made in the near future anyway. It may also exacerbate oversupply problems in the sector
    • C4C required the old vehicles be destroyed: It prevented the recycling of their parts. It takes energy to produce new car parts and new cars
  • C4C led to a shortage of used cars: CARS shifted activity from the used-car sector to new cars. In order to take advantage of the temporary scheme there were more new-car buyers
  • C4C will inflate used car prices sooner or later: Future used car sales may be lower when the scheme ends. People may also be trading in lower-quality second cars that they did not drive much
  • CARS hurt non-auto consumption, which fell 0.6%
  • C4C is bad for used car dealerships and charities: Volunteers of America and other charities receive tens of thousands of cars each year. These donations have fallen up to 12 percent and a 25 percent drop is feared as owners rush to trade gas guzzlers for new fuel-efficient models
  • C4C hurt the lower-income people who would normally buy serviceable used cars worth less than $4500. The government is outbidding them for these affordable vehicles and then destroying them. This would further increase the prices of the used cars available in the market
  • CARS hurt the workers and businesses that make a living through older cars and trucks. These businesses get counted in gross domestic product

Criteria for qualifying for the giveaway were so lenient that the environmental benefits were minimal.

  • The government must implement minimum vehicle efficiency standards
  • Targeting the worst polluting cars leads to the largest environmental gain: Based on fuel consumption, gallons per hundred miles (GPHM), a Toyota Prius at 2.17 GPHM, a RAV4 at 4.17 GPHM and a Range Rover at 7.14. GPHM
  • The program requires buyers to update to a more efficient vehicle, it is much easier to qualify for a rebate if you are buying an SUV
  • A small miles-per-gallon upgrade gas guzzling SUVs will make a bigger net difference in emissions than a medium-sized MPG upgrade improvement among cars that are already fuel efficient

CARS/C4C has precedence in the U.K. and Germany: In the U.K. scheme, government and manufacturers offer 1,000 pounds each toward the cost of a new car or van if owners trade in a vehicle more than 10 years old that they have owned for at least a year

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