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Marketplace Scratch Pad

A clunker of an idea?

Scott Jagow Jul 31, 2009

Today, the House voted to spend another $2 billion on the Cash for Clunkers program. You know, trade in your old gas guzzler, and the government gives you a $4,500 rebate on a new, better MPG model. It seems like a no-brainer if you’re in the market for a car, but unfortunately, the program might also be missing some brains.

First, the good. I talked to our reporter Stacey Vanek-Smith. She’s working on a story for tonight’s Marketplace, and on one side, you have people who say this is excellent stimulus. It gets money down into the roots of the economy because the car business is one of those with a big multiplier effect. An increase in sales ripples through the supply chain. From Automotive News:

“This is the first glimmer of hope we’ve seen in the auto industry,” House Appropriations Committee Chairman David Obey, D-Wis., who sponsored the bill, said on the House floor.

But you have to wonder how long the buzz will last. As we’ve seen before, once people get hooked on rebates, they want more rebates, and sales die when there’s no dope left. Is the government just feeding the car rebate addiction by putting more money into the program?

Edmunds.com took this viewpoint earlier this week:

Edmunds.com’s research shows that typically 200,000 vehicles worth less than $4,500 are traded in for new vehicles every three months. At best the current Cash for Clunkers program will fund 250,000 such transactions in the same time period — a gain of only 50,000 vehicles. Given that this program is budgeted to cost $1,000,000,000, this increase will come at the cost of $20,000 per extra sale.

“The incremental sales will be limited and at a considerable cost. In effect, we are paying consumers to do something most would do anyway,” said Jeremy Anwyl, CEO of Edmunds.com. “So as a stimulus, the program fails. One could make a slightly stronger argument about the environmental benefits, but even there, the program could have been better designed.”

That’s because the requirements are pretty lax in terms of improving gas mileage.

Even dealers have mixed feelings about it. Sure, it gets people in the showroom, but a. there’s a ton of paperwork and b. they’re nervous they won’t get reimbursed by the government. I found this in a Maine TV news story (Russell is a local car dealer):

“We’ve done 79…that’s more than $300,000 that we’ve put out to consumers and yet we haven’t received a dime from the government. Not a penny.”

RUSSELL SAYS IT WOULDN’T BE SO BAD IF HE WAS MAKING HUGE PROFITS ON THE SALES OF THE NEW, ENERGY-EFFICIENT CARS…BUT THAT’S NOT THE CASE.

“This car, for example, right here, there’s a $300-$400 profit for the dealer and we’re risking $4500 to realize that.”

But man, oh, man, if you have an older car and want a new one, this is a good deal. The New York Times had a couple of examples:

Paul, a Wheels commenter, wrote last week that he traded in a 1999 Lincoln for a 2009 Hyundai GLS Elantra under the program. He paid $8,700 for a car that costs about $15,000.

Another commenter, Red Oscar, wrote that he traded in an old Astro Van and ended up paying $11,000 for a new Dodge Caliber. The base model, the SE, goes for about $17,000.

Tell me what you’re thinking…

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