Auto Bailout: Will Cash for Clunkers Program Work?

It looks as if the cash for clunkers program may not give quite the goose to car sales that was intended. Though the auto dealers are gearing up for a big push some analysts point out a couple items that might mute the program’s success.

From the WSJ:

The $1 billion appropriated in the bill is enough to fund about 250,000 vouchers for new-car purchases. It isn’t certain, though, that customers will rush to trade in their clunkers.

Because the program requires dealers to scrap the vehicles that are traded in, the most a trade-in will be worth to a customer is $4,500. So only people who own cars worth less than $4,500 — or $3,500 if they don’t trade up to a car with substantially greater efficiency — are likely to participate in the program.

Moreover, people driving older cars worth that little may be unable to afford a new car, even with the voucher, said John Wolkonowicz, an analyst at forecasting firm IHS Global Insight.

And because gas prices are far lower in the U.S. than in Europe, customers don’t have as great an economic incentive to trade up to a more-efficient vehicle.

The bill gives the National Highway Traffic Safety Administration 30 days from the date it is enacted to come up with rules for the program. NHTSA needs to devise ways to register participating dealers and make sure they scrap the cars traded in under the program, so they don’t turn around and resell them.

I can’t see how this program is going to appeal to any but a select few buyers. If gas were at $4 a gallon or more than more people might be incented but I just don’t see all that much of a rush to buy fuel efficient vehicles right now.

As for the plan to make sure the trade ins get scrapped — good luck! That part of the plan is just begging for scams. The autos may go from the dealer to the scrap yard but that doesn’t mean they’ll end up shredded. I suspect that there might be a really good market in Mexico for them.