Follow us on Twitter“Cash for Clunkers” Gains Traction
“Cash for Clunkers” is a term that’s been bandied about a whole lot lately, in the automotive world and in halls of Washington, D.C. I’m sure you’ve heard of the program; it’s been introduced in several European countries to great effect. Seeing this success has prompted the U.S government to consider a ”Cash for Clunkers” program of our own.
It’s an idea that has merit, and is gaining serious traction. Embattled Governor Jennifer Granholm of Michigan has voiced support for the program, saying to the Detroit Free Press: “There has to be a strong statement of support to buy American, buy the cars that we are producing in this country.”
Her support of the plan includes the incentives applying only to U.S made vehicles, obviously something that the foreign manufacturers are opposed to. That has been a big point of contention in any final bill, just as U.S steel was in the Economic Recovery Act. The bill being considered in the House is Rep. Betty Sutton’s H.R 1550, named Customer Assistance to Recycle and Save (CARS) Act. Hers would cover all vehicles made in North America.
The bill has met with bipartisan support, even from the President in his automotive press conference. Here’s what he had to say:
“Several members of Congress have proposed an even more ambitious incentive program to increase car sales while modernizing our auto fleet. Such fleet modernization programs, which provide a generous credit to consumers who turn in old, less fuel efficient cars and purchase cleaner cars have been successful in boosting auto sales in a number of European countries. I want to work with Congress to identify parts of the Recovery Act that could be trimmed to fund such a program, and make it retroactive starting today”
Britain is currently considering similar legislation and the program has had measured, proven effects in Germany, France and Italy. I believe a few other European have similar programs as well. That success has prompted program extensions.
Germany’s reported new car registrations up 40% percent, France at 8.1 percent and Italy 1 percent, far better then the double digit sales declines we’re currently experiencing in the U.S. Italy also reports that orders are up 38 percent. That’s a key number. Unlike in the U.S, most European customers order their new vehicle rather then driving them off the lot immediately.
It not like it hasn’t had any opposition though. The Automotive Aftermarket Industry Association (AAIA) and the SEMA Action Network (SAN) has been very vocal about their displeasure with the plan, with SAN head Steve McDonald working to defeat the proposals and urging members to call their legislators. They in part have helped keep the idea from making it’s way into the original language of the Recovery Act.
Basically, they conclude that the act would 1. Fill landfills, 2. Destroy vehicles that collectors love (and our “national heritage”), 3. Reduce cars available for people of low-income and 4. 4. Hurt independent repair shops that depend on them to restore, repair and accessorize.
The problem with that reasoning is: do you really think anyone in their right mind will go take a classic vehicle that has worth to get traded in? No. People will trade their old, used vehicles that don’t have much . It’ll get them taken off the road in place of newer, more efficient ones.
People that don’t have a qualifying vehicle to might even buy vehicles from independent sellers to trade, further stimulating the economy. I think the bill will only have positive effects. People with classic vehicles will still treat them well and get them fixed, repaired, restored, etc.
The major automakers are in full support of it, and some estimate that it could generate 2.5 million in new sales. That would be a huge boost to the struggling industry, helping to bring the annualized sales rate to around 12 million vehicles.
I’m in favor of it; I think it will help keep the automakers going and people employed while helping to modernize our national fleet with more fuel-efficient vehicles. Could this be just what the ailing industry needs to help soldier on during this difficult time?
I’m inclined to disagree with you on this one. Sure, it stands to save the auto industry by stimulating sales, but at what cost? We’re in this economic rut due to loose credit standards in the housing market. This sort of program reinforces the gotta-have-it-now mentality of the American consumer that’s at the heart of much of what is wrong with our society today.
It is more financially responsible to invest $3000 into repairing your $1000 car than to go into debt for three to five years on something new that costs more than $20,000. Thus begins the cycle of debt. Now the consumer has a monthly payment to manage, along with the increased registration and insurance rates that go along with new vehicle ownership.
Sure, the car is likely more environmentally friendly, and there’s a warranty, but anyone who can read at a sixth grade level knows that warranties generally do not cover basic maintenance, consumables, or general wear and tear. Furthermore, in the event of catastrophic failures, it’s not hard for the service department to determine the fault was the owner’s and void the warranty anyway. This sort of program puts marginal environmental benefits and the profitability of auto manufacturers above what is actually best for the motorist.
A more intelligent solution might be to offer this credit towards first repairing these vehicles. If the cost of the repairs would exceed the credit, then a scrap value might be assessed. In this way, vehicles could be required to use the credit at a dealership or ASE certified facility, which would stimulate the automotive industry where it really helps – parts and labor.
Finally, in the interest of being environmentally responsible, this plan would likely see these “clunkers” immediately scrapped, crushed, and recycled. This would result in a reduction of decent used parts being available for enthusiasts and DIY mechanics who take pride in being responsible for their own maintenance and repairs. Rather than focus on making better cars, or encouraging the average Joe to take better care of what he’s got, actually viewing his vehicle as the investment it really is, this plan aims to load him up with more debt under a veiled opportunity to shirk more responsibility across the board.
This country needs personal responsibility and accountability nurtured and encouraged. We don’t need another government-authored policy allowing everyone to sweep their responsibilities under the rug.
Manufacturers must build vehicles that people want to buy, that are fuel efficient, and that are ultimately dependable. They need to re-work their service department models to attract owners back for the regular maintenance and support that the vehicles need to go the distance.
The people of America need to stop living beyond their means. They need to wake up and recognize that it’s ALWAYS better to invest in taking care of what you’ve got than going into debt for years to get something new (which then limits your financial ability to maintain it). As we in the enthusiast circles tell the folks who buy a new car and then post their anger that the dealership didn’t fix their car under warranty because they were racing it, “The dealership is NOT your service crew.” If you can’t afford to take care of the vehicle, DON’T BUY IT.
I, for one, plan on fighting this measure.
Wow, very insightful comment! Thanks for giving your opinions.
I do see the point you made; there is definite pros and cons to this program.
The reason why I think it’s a good idea right now is that right now, the most important factor is getting the economy moving again. Once we get gfowth going into a positive direction it would be nice to see consumer spending come down to a better level along with a rise in the savings rate.
When the economy is doing well it’s easier to adjust. Also, I think this measure might help people that have been reluctant to buy a new car due to the economic situation. Sensible people who have owned their car for a while and this could be the catalyst that helps them get into a new one.
So I do see your point but I think this could be the short-term stimulus our automakers need to get through this rough patch.
There are potential positives to each side of this argument, Tony, but creating a program like this also sets a precedent for the government offering widespread programs to remove older vehicles from the road. These vehicles are not salvaged – sold as a source of replacement parts for repairs – rather they are crushed, shredded, and melted down, penalizing other owners who rely upon the value of used parts for repairs that they intend to keep long term.
We all heard the rumor recently about California, in their usual “brilliance,” seeking to ban black cars because they have the hottest interiors, requiring the most use of AC, leading to increased pollution. I know it’s not really the same sort of situation, but with so many states following California’s socialist lead like lemmings, giving any sort of precedent for flat out destroying older cars merely to benefit the automakers for a brief time is still just sweeping bigger problems under the rug. Why unlock a door which might allow the government to one day add your favorite car to a black list, with a bounty on its head – dead or alive – and an organized process for systematically eliminating the supply of replacement parts to keep said car on the road?
At the core of this economic nightmare is the housing bubble, which we’ve not seen a whole lot of effort to resolve. We’ve bailed out automakers who have the option of bankruptcy protection while leaving homeowners out in the cold. Maybe, if someone wasn’t seeing his mortgage increase every month, he might be able to think about a new car. Maybe, if more was done to keep mortgages in check and help people to buy a house they can afford, there might be an increase in personal wealth again which promotes needed spending in ALL markets, not just the auto industry.
Don’t get me wrong, I’ll not shed a tear for poorly made, undesirable, domestic cars getting destroyed (because they *will* destroy them), but I know a significant number of people loyal to these greedy, poorly managed, brands who maintain their investments will be at a distinct disadvantage with the lack of used parts on the market.
If they are so greedy and proud that they have to find ways like this to generate need of new vehicles rather than actually offer vehicles people truly get excited about and WANT to buy, or rather than demonstrate their proficiency in repairing or maintaining their own products (you know, maybe show the world that some of their products last more than three years), then I hope the people who participate in this program just use the money to buy a bicycle.
I tend to side with Tony in thinking this isn’t the greatest idea. It would basically eliminate an entire market of old used cars, a market that people like me love and can afford. What would our roads be like if it were just filled with newish Camrys and Accords? Boring.
and SOME people can’t AFFORD a new car because we’ve screwed things up for so long that no one can get any damn FINANCING. But people still need cars; how is this even hardly fair?
Brian, I love the comments you leave on this site. Always gives us something to think about.
I have mixed feelings about this. I like the plan in general, but I do feel for the little guy: He probably can afford to buy the least expensive new car, even after a $5000 rebate. This plan needs to add a provision that pays a large part of the car improvement costs, such as a new engine, transmission, catalytic converter, etc…. this too will improve the fuel efficiency, add a few years to that old car, reduce waste, help the aftermarket parts industry, and best of all, will probably cost less than the planned $5000 rebate. By adding a few sentences to help the little people, we actually reduces cost and help all players in this game…. Car companies, dealers, new car buyers, “OLD” car users, junk yards, parts manufacturers and dealers, etc. etc.
Being appreciated is always appreciated, James.
You’ve got my point about such a program falsely generating demand where it would otherwise not exist. Let’s face it, the only reason people aren’t going deep into debt on cars and trucks right now is because the banks aren’t interested in lending out any of that bailout money. The long-standing joke: Banks only lend you money once you’ve proven you don’t need the loan.
If I were Bob Nardelli today, I’d be doing everything possible to get Fiat 500s on ships headed to the US immediately to compete with the Ford Fiesta. (And if I were some car czar, I’d have GM tasked with CTS-V handling, quality, and style being available under $20k in a compact. Call it “Cimarron II” for all I care. Make a desirable small car for once.)
The Fiat 500 is a single, smaller model which has already been considered the most popular car in the EU (don’t quote me on that). Bring a mix representing the range of trim levels from the basic to the Abarth SS in order to cater to everyone from the budget-minded economist to the performance-thirsty street tuner who has something against Mini owners.
Much like the Fiesta, the little 500 would provide that fresh, new, I-got-one-first factor. People would be talking. More importantly, people would be buying. Again, the core of my resolve to FIGHT CASH FOR CLUNKERS is that I feel it is wrong to destroy older cars which could be salvaged to provide extended value to owners in order to compensate for manufacturers not producing models which instill desire in the market to buy them under the veil of reduced emissions.
Keep up the good work, gentlemen. I enjoy reading this one.
Thanks! Glad you enjoy the site. I’ll second James in that your posts are very thought provoking. The California black car fiasco was outrageous; an absolutely ridiculous measure that would serve no purpose other to expand government control.
The government has NO business in telling you what color of car to drive. Sounds Soviet Union-like to me! We’ll see how this “Cash for Clunkers” program plays out here in the U.S. I’d imagine the AAIA and SAN will continue to fight it vigorously.