What Was The Cash For Clunkers Program?

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In today’s day and age, knowing how to save or make money here and there is valuable information. Everyone wants extra cash or lower prices, but not everyone knows where to look.

If you were around from July 1 to August 22, 2009, you might have taken part in the Car Allowance Rebate System, or Cash for Clunkers as it is more colloquially known as. This government program incentivized people to trade in their old, fuel-inefficient cars for newer more environmentally friendly ones.

This program was created in response to the 2008 recession and was promoted as a post-recession stimulus program to create more car sales and help save the environment.

Initially, the program only had $1 billion in funding, and was meant to last through November. This changed, however, as the program ended up being much more popular than anticipated. The funds dried up on July 30, only 29 days after being put into action. Congress approved another $2 billion after the overwhelming response to this program.

The program had some rules for eligibility. Vehicles had to be no less than 25 years old for example. The car you were trading had to have a rating of 18 or fewer miles to the gallon and the car had to be scrapped.

The rules didn’t stop people from trading in their cars for newer ones with help from the government. You were able to purchase a car up to $45,000 and the numbers speak for themselves. 690,000 vehicles were sold under the Cash for Clunkers program and a ton of environmentally unfriendly vehicles were taken off the road.

The Side-Effects Of Cash For Clunkers

The program was a complete success, but had some unintended side effects. The short term goal was a success. More money was being spent for cars and the automotive industry received a boost — but did it last?

One of the unintended consequences was encouraging people to spend less than they would have in the coming months. Because the government encouraged shoppers to buy the “greenest” cars they could, individuals turned to Toyota Corollas and Honda Civics in droves, staying away from some pricier hybrid cars that they might otherwise have chosen to spend their money on.

Most cars being driven after that were foreign Japanese cars. Less consumers turned to American cars in this time period, an unintended consequence of the rules of the program. This did not critically impact the US negatively because most of the cars being purchased were manufactured in America but it did have some impact.

Automakers in America at the time were not focused on environmental cars. Since customers focused on green cars, most American automakers sold less vehicles during this time period than they would have without the program. Ford was the only exception. Other car makers who made hybrids or fuel efficient vehicles were pushed back when it came to profitability.

Americans like driving big cars, but these were not as efficient. As a result, the program directly disincentivized the purchase of what we were making in America, and instead incentivized foreign eco-friendly cars. This was not good for cities that specialized in car making, like Detroit.

But although we feel the impact today, with every car you see on the street being a Corolla or Civic, people still tend to talk about bringing the program back whenever we enter a period of economic slowdown. What could this mean for the economy?

Would Cash For Clunkers Work Today?

Because of covid-19, all industries are suffering right now, except for maybe toilet paper. A new Cash for Clunkers program could drive about $50 billion (about $150 per person in the US) in sales for the car industry. But to avoid mistakes from the past, a few changes would have to be made.

Although the environmental focus was a source of problems in the past, it should continue to be a key point of the program. This provides a moral justification for bailing out the auto industry. Some smart moves could be increasing the fuel efficiency cap, and perhaps emphasizing safety features like advanced driver assistance.

Including patriotic benefits would also appeal to the crowd who don’t care about the environment by focusing on helping out American industries. Requirements like ensuring the program would only apply to cars made in the US could help in that regard. Car manufacturers that are struggling to create expensive safety and environmental features will get a boost and keep the models that offer them stable.

A second Cash for Clunkers program could work in our current scenario if some changes were made. Even politicians in Germany are considering similar plans, so the concept does not just apply to us. Whatever the case, get ready because we soon might be getting incentives from the government to buy new cars.

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