Hemmings reports that the ‘cash for clunkers’ bill that’s been bounced around is going to be included as part of an environmental bill called American Clean Energy and Security Act. Take a look at the Hemmings post for lots of links to info about the bill.
As an old car enthusiast, I stand against this kind fo thing because it takes old cars that may be desirable and sends them to the crusher. Even if they aren’t restorable, they may have valuable parts that could be used to restore another. But even without my special interest in keeping neat old cars on the road, the idea makes little sense to me. I won’t pretend that the following is the result of a lot of research and reading, it’s not. It’s just my thinking.
So what good can come from giving people a few thousand dollars (Hemmings says $4,500, but I don’t know what the final is) toward a new car if they junk their old?
- You get older, perhaps polluting, perhaps less efficient cars off the road
- You give the car companies and dealers a boost by spurring sales.
That’s it. Sounds good, though, doesn’t it? i don’t think it’s really going to deliver on those things and it creates other problems.
Stick it to the Poor
To illustrate what’s wrong, let me start with a couple of my recent clunkers.
- In 2000, I traded a 1988 Grand Caravan with 180,000+ miles on our late model (at the time) Honda Odyssey. It was rusty, rattly and worn, but the engine was only 35K old and the tranny only 80K. Still, I got only $500 on trade. I’m sure it went to auction and eventually someone who needed a cheap car ended up with a solid van for around $1,500, maybe less.
- In 2006 I got my new 2005 Mazda3. It replaced another rusty and worn car with 180K+ on the clock, a 1993 Escort. The car ran great, but the clutch went out. I gave it away to a mechanic who put a clutch in it ($100 or so in parts) and either drove it or sold it, I don’t know. Even if it was sold, I doubt anyone paid over $1,000 for it, not bad for decent transportation.
Both of those cars had decent life left in them and whoever bought them got solid transportation for under $1,500. For a poor family, good, cheap transportation is sorely needed.
If cash for clunkers had been in place, well, the extra $4,000 on trade for the Caravan may have put me in a new Odyssey instead of used and $4,500 for the Escort would have been phenomenal. That would have been more than 25% down on my Mazda. But, that would mean that those two families wouldn’t have had those sub-$2,000 cars available (the law says they must be crushed). Even if I hadn’t taken advantage of the cash for clunkers, someone would have likely given me substantially more than market price fore each, maybe over $2,000 each, so they could turn it into $4,500 off a new car.
I wonder what effect cash for clunkers will have on the cheap car market that the working poor relies on? If every old car is suddenly a $4,500 coupon toward a new one, the price of basic transportation is bound to go up.
But We’re Helping the Environment, Right?
But this is about the environment, getting old, inefficient polluters off the road. (My Escort was far from inefficient, averaging 34.6 MPG over the 10 years I owned it, but never mind that.) That is true, one of the purported benefits is getting old cars off the road and encouraging folks to get into more efficient and less polluting vehicles. Older cars may not meet current emissions laws and are more likely to be poorly maintained and therefore polluting more.
But, as I stated, the law as I understand it requires that the clunkers be destroyed. They cannot even be parted out to help keep other clunkers on the road. (Another hit to the poor who rely on cheap, junkyard replacement parts) Junkyard parts are a not insignificant part of keeping the environment clean. Giving these parts a new lease on life keeps them out of the landfill for a few more years.
What impact on the environment will disposing of hundreds of pounds of scrap metal and plastic, not to mention the fluids, have? Where is it all going to go?
It seems that we’re trading one environmental problem for another.
It’s Going to Help the Industry
Yes, for now. We’re creating an artificial environment where new cars are more affordable, when that environment is gone, then what? Folks who are going to look for a car, are going to take advantage of this program and buy before it’s over. Once it’s up, I bet sales tumble for a time. So we’re setting ourselves up for a short boom then another bust.
Have We Learned Nothing From the Housing crisis?
I heard Ben Stein sum up the mortgage crisis something like this. “Democrats wanted to give a mortgage to anyone with a pulse and Republicans wanted to let the banks do whatever they wanted with no regulation.” So, at the urging of the Democratic congress (I’m sure there were other reasons too), banks lowered their lending standards and the Republicans lowered oversight. Folks saw a house, a bank now willing to lend and a payment they could afford (now anyway), and took on more than they should have.
Now, we are hanging another big carrot of folks heads. A new car! Look, here’s $4.500 for your hooptie, just sign up for $12,000+ in debt. Doesn’t anyone else feel a little deja vu here? How many folks are going to get sucked into loans they cannot afford? At least now the banks are so scared to lend that maybe they’ll actually turn some of these people down.
But isn’t the message a little off? Times are tough, go borrow money to replace a car that was serving you fine until we waved a $4,500 check in your face.
I’m sure there are other reasons that people smarter than me can come up with, but cash for clunkers looks a lot like a program that will cost more than it gives us. It raises prices on the poor, hurts the environment as much as it helps it, provides only a temporary boost for the industry and sends the wrong message. The only people it is really good for are congressmen who get (again) to look like they’re doing something while actually making things worse. There’s that Deja Vu feeling again.
Not to mention the neat old cars that will be gone forever.