Cash for Clunkers - what do you think?

[Walter Yarbrough]

Seems like an interesting idea to me:

http://www.nytimes.com/2008/07/27/business/27view.html?ex=1374811200&en=a19470300b516a2f&ei=5124

"We now want intelligent ways for the federal government to spend money.

Here’s a high-end cost calculation for a national program. Suppose we took two million cars off the road a year, at an average purchase price of $3,500 (the top price in the Texas program today). Including all the administrative costs of running the program, that would probably cost about $8 billion. Compared with other nationwide income-transfer or environmental policies, that’s a pretty small bill. For stimulus purposes, it would, of course, be better to run the program on a larger scale, if possible. There are over 250 million cars and light trucks on American roads, and some 30 percent are 15 years old or older. That’s at least 75 million clunkers. At five million cars a year — an ambitious target, to be sure — the program would cost less than $20 billion, still cheap compared with the $168 billion stimulus enacted in February.

And what would all this money buy? First, less pollution. The Texas program estimated that clunkers spew 10 to 30 times as much pollution as newer cars. Second, the subsidy value (the 20 percent premium in my example) is a direct income transfer to the owners of clunkers, who are mostly low-income people. Third, these folks would almost certainly spend the cash they receive — not just the subsidy, but the entire payment, giving the economy a much-needed boost.

Oh, and I left out a fourth possible goal. By pulling millions of old cars off the road, Cash for Clunkers would stimulate the demand for new cars as people trade up. It need hardly be pointed out that our ailing auto industry, like our ailing economy, could use a shot in the arm right now. Scrapping two million or more clunkers a year should help.

With today’s concerns over stimulus, inequality and greenhouse gases, as well as an aging vehicle fleet, Cash for Clunkers is an idea whose time may finally have come. Write your congressman.

Alan S. Blinder is a professor of economics and public affairs at Princeton and former vice chairman of the Federal Reserve. He has advised many Democratic politicians.

[Machfive]

Don't forget the salvage value of those old steel behemoths.

[Pogo]

That value being a couple dollars worth of steel :)

This is a great idea and it needs to be implemented immediately, and not 15 years in the future after the fucking assholes in the government get to it.

[Jason McCullough]

As tempting as it is, I suspect there'd be some disasterous unforseen bit of manipulation.

[AndrewM]

Steven D. Levitt (of "Freakonomics" fame) is skeptical (http://freakonomics.blogs.nytimes.com/2008/08/08/no-cash-for-clunkers/).

[wildpokerman]

Steven D. Levitt (of "Freakonomics" fame) is skeptical (http://freakonomics.blogs.nytimes.com/2008/08/08/no-cash-for-clunkers/).

Thanks for that.

I think Levitt is right that quite a few of the cars that were turned in would be cars that aren't being driven anyway.

[hong]

Thanks for that.

I think Levitt is right that quite a few of the cars that were turned in would be cars that aren't being driven anyway.
You could deal with that by requiring up-to-date registration details. You would still get some cars that weren't being driven, but generally people would only register a car if they were planning to drive it.

[Charlatan]

One of the posters in Levitt's blog mentioned a similar program used in Spain - for that program, you only received the cash when purchasing a new car. So adding in some sort of bonus when you purchase a new(er) car would make sense, as a little extra incentive to trade in the old crappy car on a newer one.

[Wallapuctus]

I see the potential for exploitation here to be very high. If suddenly old crap cars are worth $3000+ in some government cash in program, I have a feeling we'd start seeing a lot of crappy cars getting stolen.

[Robert Sharp]

My wife drives a 95 (I think that's right) Accord. It's far from a clunker. Still, the biggest problem is the one Wallapuctus mentioned.

[Lorini]

I would think a lot of these older cars don't get great mileage; either they never did or because of their age/maintenance. So we could probably save money on gas because of less demand. I think it's interesting and worth looking into.

[Machfive]

That value being a couple dollars worth of steel :)

Have you SEEN scrap metal prices these days?

I see the potential for exploitation here to be very high. If suddenly old crap cars are worth $3000+ in some government cash in program, I have a feeling we'd start seeing a lot of crappy cars getting stolen.

This thought occurred to me as well, along with the logical follow-up that the people who have sub $2500 clunker cars probably don't have insurance on them either, or won't get crap from insurance if they do have it.

You'd have to restrict it to running vehicles with current registrations AND insurance AND proper title.

One of the posters in Levitt's blog mentioned a similar program used in Spain - for that program, you only received the cash when purchasing a new car. So adding in some sort of bonus when you purchase a new(er) car would make sense, as a little extra incentive to trade in the old crappy car on a newer one.

But what if the person wants to trade in their car and start using mass-transit? If the goal is to reduce gas usage, those are the people you REALLY want participating.

[Woolen Horde]

It sounds like a nifty idea at first, but I start to think about it and it get ugly...

Poor people who drive clunkers drive them cause they're cheap. Previous owners paid off the original car loan, which means they just need to pay a small amount to own the car outright. Trade it in under this program $3,500 isn't a lot; it's basically a down payment on another car, and what's the cheapest car? $12-$15? Someone will still owe $10,000 for a new car, which means that they've got to make car payments, higher insurance (cause it's a new car), etc. These are people who probably couldn't afford such a thing to begin with, which is why they bought a cheap-ass clunker. So that either means extending credit to a bunch of people who probably have trouble getting credit (and what has the current credit mess taught us about that) or having to get the government to fund this, too.

[Dave47]

It sounds like a nifty idea at first, but I start to think about it and it get ugly...

Poor people who drive clunkers drive them cause they're cheap. Previous owners paid off the original car loan, which means they just need to pay a small amount to own the car outright. Trade it in under this program $3,500 isn't a lot; it's basically a down payment on another car, and what's the cheapest car? $12-$15? Someone will still owe $10,000 for a new car, which means that they've got to make car payments, higher insurance (cause it's a new car), etc. These are people who probably couldn't afford such a thing to begin with, which is why they bought a cheap-ass clunker. So that either means extending credit to a bunch of people who probably have trouble getting credit (and what has the current credit mess taught us about that) or having to get the government to fund this, too.
They wouldn't be forced to turn in their cars at gun-point. If you really needed your clunker to survive, you could keep it. But for some people, $3,500 will be enough to make a new car viable (or enough to make them willing to switch to mass transit.)

Also, the math for this changes if you assume that people will be turning in their clunker for a used car. A quick internet search suggests you can get a 2006 KIA for around $6,500. Not exactly a dream car, but it will almost certainly get better gas mileage than the older car being turned in.

[tronnc]

After recently watching some interesting talks/lectures put on by Stanford from the Rocky Mountain Institute. Stuff like the article is mentioned as one of the policy's that would work well. It was also recommended for struggling airlines, instead of the government just giving them bail out money they could help the airlines by helping them buy new more fuel efficient aircraft and removing the inefficient ones from service.


Check out video 4 from this site Implementation start watching around the 10 min mark. All the videos are really informative on what could be done for energy efficiency. They are long over an hour each but with anything complicated does take time to learn about you can't simply read a one page article or a short two minute speech from a politician to get all your info.

http://www.rmi.org/sitepages/pid231.php

[Qenan]

Taxing clunkers would be more effective, if unpopular.

[mouselock]

Taxing clunkers would be more effective, if unpopular.

More effective in what? If you accept the assertion that the majority of people driving these cars are poor, all you're doing is putting an excessive burden on these people. The goal isn't just to get rid of excess pollution; the goal is also to get rid of the underlying need to retain these pollution spitting beasts by the poor. I'm not sure how you think increasing that tax burden is going to accomplish this.

[Reldan]

It would pretty well set the minimum value of a working car to be $3,500.

If you didn't already own a car and were poor, good luck. You're not going to find anyone selling an under-$2000 car at all.

[Walter Yarbrough]

It would pretty well set the minimum value of a working car to be $3,500.

If you didn't already own a car and were poor, good luck. You're not going to find anyone selling an under-$2000 car at all.


That's a good argument - except for cars or owners of cars that don't meet the guidelines

In the portion of the article that I didn't copy and paste, he proposed

By raising the 20 percent premium, lowering the 15-year minimum age, or raising the $5,000 maximum price or the $60,000 income ceiling, you make the program broader and costlier — and create a bigger stimulus. By moving any of these in the opposite direction, you make the program narrower, cheaper and smaller.

A 15 year minimum age on the car, and a 60k income ceiling.

[Bahimiron]

I'm all for it. Value on my POS is around $2000. With $3500 I could put a decent down payment on a fuel efficient Fit my goddam girlfriend won't shut up about.

[Robert Sharp]

I would think a lot of these older cars don't get great mileage; either they never did or because of their age/maintenance. So we could probably save money on gas because of less demand. I think it's interesting and worth looking into.

Perhaps. But some of the best MPG cars ever are from the early 90s. The Honda CRT for example, or the Geo Neo (or whatever the hell it's called).

[shift6]

I definitely agree that the definition of clunker needs to be refined past "15 years old". The do talk about a "special premium" for the worst polluters, but it seems to me that these should be the specific target of any such policy. Such a program would still be highly effective and worthwhile, but without cutting as wide a swath (as government programs tend to do, eg. creating whole new sets of laws because some cute white girl was kidnapped, etc.)

[Quaro]

This just seems ripe for gaming the system. My car's 11 years old, and I'm thinking of buying, but I'd wait if this credit were in effect. Or I'd try and track down an older car, switch to that, and then upgrade.

I like the general idea though, maybe it can be refined. Or maybe just a blanket subsidy/tax that scales with MPG and emissions, making small new cars cheaper.

[Reldan]

That's a good argument - except for cars or owners of cars that don't meet the guidelines

In theory somebody out there meets the guidelines. This means that these clunkers are worth $3,500 to somebody out there (probably lots of somebodies), which means the clunkers, basically, are still worth $3,500 regardless of what fiddly crap you do with the numbers.

If I make more than whatever the income limit is and want to dump a clunker, I simply sell it to somebody who's below the income limit for $3,000.

[Walter Yarbrough]

Agreed that the system needs work - but we're nitpicking.

As far as massive ineffective government programs go - it seems good to me.