'Cash for Clunkers' Already a Flop

Temporary boost in sales probably won't last

By Sara K. Smith
|  Tuesday, Jul 28, 2009  |  Updated 5:01 PM EDT
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'Cash for Clunkers' Already a Flop

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The fuel economy of the nation's fleet may increase ever so slightly due to massive government subsidies -- but the "cash for clunkers" program is hardly a game-changer.

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Several months ago the president unveiled a wonderful new plan to rescue the economy. It consisted of bribing people with crappy old fuel-guzzling cars to buy slightly less crappy new cars, which was going to give the American auto industry a much-needed shot in the arm! But, like all plans to revive our stubbornly sluggish economy, this one doesn't seem to be working all that well.

See if you can spot what's wrong with this sentence:

The program was passed by Congress and signed into law by President Barack Obama in June, but the rules and details were only laid out Friday by the National Highway Traffic Safety Administration.

That's right -- the program has been in effect for weeks, but nobody knew what the rules actually were. Fortunately, the rules are retroactive to July 1, so the people who met the rather stringent requirements but didn't know it can still qualify for their rebate.

The bigger problem is that the program just pushes people who were already in the market for a car to buy sooner rather than later -- it doesn't really persuade people who didn't want a new car to suddenly buy one.

Auto site Edmunds.com forecasts that the program will stimulate the sale of only 50,000 vehicles that would not otherwise have been sold.
The $1 billion program would therefore be spending $20,000 to foster the sale of each additional car.
"The incremental sales will be limited and at a considerable cost," said Jeremy Anwyl, chief executive officer of Edmunds.com. "In effect, we are paying consumers to do something most would do anyway."

Auto recyclers don't like the program, either, because it forces them to trash one of the most valuable parts of the turned-in car: its engine. The point of the whole federally subsidized effort is to get the "clunkers" off the road, after all, so the clunkers must be rendered unsalable. Unfortunately, this means that auto recyclers don't make a whole lot of money off the sudden influx of junk they have to deal with.

So what's the moral of the story? If you have a large, terrible American pickup truck, you can trade it in for a slightly newer, slightly less terrible American pickup truck. There's not much in it for anybody else.

Retired Formula One racer Sara K. Smith writes for NBC and Wonkette.

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