Cash for Clunkers Program – Is it really helping?

Recent days, I see one among three cars on the road are either new or almost new, waiting to get their new license plate. Thanks to the CARS program putting more fuel efficient cars on the road taking out gas guzzlers but no thanks. It seems to be the talk of all news channels and the most popular stimulus package of all in recent months. 

It has become so popular, it even ran out money so fast in couple of weeks of its announcement and waiting for approval to get more funds almost two billion to jump start again. While it is on hold in process to get more money, we take time to analyze,

Is the program really helps the consumer, economy and enviroment as it supposed to?

It  is a $64 question. I tried to do my investigation as usual from many information loaded internet websites.

Quick Overview of CARS program
Cash for Clunkers program also known as  The CAR Allowance Rebate System (CARS) is a $1 billion government program that helps consumers buy or lease a more environmentally-friendly vehicle from a participating dealer when they trade in a less fuel-efficient car or truck. The program is designed to energize the economy; boost auto sales and put safer, cleaner and more fuel-efficient vehicles on the nation’s roadways. 

Is it helping the consumer?

Answer to the question is, Yes and No. Consumers will be able to take advantage of this program and receive a $3,500 or $4,500 discount from the car dealer when they trade in their old vehicle and purchase or lease a new one. Consumers do not need to register anywhere or at anytime for this program. However, to find out eligibility requirements click here and also check another website for more info on this program.

By giving the cash credit to auto buyers while trading in their gas guzzlers, it is free money and helps the consumer. But it is again putting the consumer to debt and adding their debt load. Many consumers who can’t even afford to buy a new car at tough time. They just want to get the cash credit and blinding buying without realizing they need to pay back the rest of their auto loan which not even tax deductabile.  It was similar to the situation people bought big houses when they can’t afford mortgage payment. It not helping any middle class who are suffering from loss of jobs instead adding their burden by teasing them with free money.

So please don’t go rushing to get a new car if you can’t even afford to make car payments says Houston chronicle sharon buggs. She also says, if you can pay all cash for the vehicle after the cash credit and other incentives are applied, then you can afford to buy a new car. Also if your take-home pay can absorb a monthly car payment — and you are not in jeopardy for losing your income stream because of a layoff — then you can afford to finance the purchase of a new car. Check out some tips from her at Houston chronicle.

Is it atleast guzzling the economy?

Not really. It is only helping one industry which is Auto. It is also in a way boosting customer confidence with money flowing between consumer, banks and manufacturers. Thats a good thing. Banks and Auto dealers are writing off loans and loosening the credit crunch a bit.

It sure helping auto makers like Ford, Toyota who is selling more cars compared to last year. The program helped lift Ford Motor Co. to its first monthly sales increase in two years, the company’s top sales analyst said Sunday.  July sales results mark the first year-over-year gain for Ford since November 2007 and apparently the first uptick by any of the six biggest carmakers since last August, Ford sales analyst George Pipas said. Check for more info.

OK! What about reducing carbon residues?

Not exactly! I know it is meant to take out gas guzzlers out of the road help which eventually help reduce gas consumption but it doesn’t affect lot on reducing carbon residue. According to npr’s report, an analyst calculates that if you trade in an 18 mpg clunker for a 22 mpg new car (22 miles per gallon is the minimum mileage allowed for a new car under the program), it would take five and a half years of typical driving to offset the new car’s carbon footprint. With trucks, it might take eight or nine years.

Of course, the bigger the mileage improvement from your old car to the new one, the more gas you save and the faster you work off the new car’s carbon footprint. If you trade in a 20 mpg car for a Prius that gets about 48 mpg, it saves so much gas that you can offset the Prius’ footprint in about a year and a half. (But a 20 mpg car doesn’t qualify as a clunker, so there’s no government voucher). 

Analyst don’t see a direct or immediate impact on the reduction of carbon residues by this program but it does help in the long run.  It also takes whole lot of cars to be taken out of the road to really make a difference. Check out another report,  “Clunkers” program isn’t really green.

Bottom line, in all aspect, I don’t see a real value to this CARS program. Also is it worth saying the program is success just by merely from the billions running out? It neither nurtures the consumer personal finance status nor the environment. I only has shorter impact to the economy especially to auto industry. At this time of recession, when the unemployment rate is very high and people are struggling to feed their family, we need better program with greater impact. This program only helps smaller portion of people who either has good job or good bank account or credit to spend for their new car. 

Thats my take and I am sticking to it.

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