Cash for Clunkers: Beneficial or Detrimental?
Deciphering the new bill.
As most Americans have recently become aware, Congress has passed a bill known locally as “Cash for Clunkers” and known officially as The CARS (Car Allowance Rebate System) Act. I will spend a little time running through the details of this bill, but not much as I assume whoever is reading this is most likely already familiar with it. If you don’t care to read the details, just skip the next two paragraphs.
The CARS Act offers Americans the ability to trade in their vehicles to any dealership of their choice, and in return they will get $3,500-4,500 credit toward any new vehicle, with a price tag of less than $45,000 dollars. Now, the car that you are trading in must meet some requirements. These are: it must not be more than 25 years old, it must be in drivable condition, it must have been registered and insured for no less than one year prior to the date you are trading it it, the name of the person on the title of the car you are trading in must be the same as the person who is purchasing the new vehicle, and you must have a clear title to present to the dealer, no liens.
The car you are buying must also meet some requirements. These are: no motorcycles may be purchased under this bill, the vehicle purchase must be between July 1, 2009 and November 1, 2009, the vehicle must be new (2008, 2009 or 2010 model), and each person can only participate in this program once. There are other MPG requirements, but I won’t go in to those.
Now, my husband and I live, according to the government, below the poverty line. That is to say, we are poor, and there is no doubt about it our standard of living qualifies as “lower class”. We are both college students, and we both work part-time jobs. That being said, as I am aware, this bill has been passed in order to have a direct, positive impact on the lower and middle classes. Or, in essence this bill was created for people like us.
I will also say that we have a 1988 Jeep Cherokee, 2 door, 4.0 litre, 2 wheel drive, 6 cylinder, a remarkably reliable vehicle (notoriously so in fact) and exactly the type of vehicle that qualifies for this plan. I have recently had to replace the starter, the alternator, and buy a new battery for it, all of which cost me no more than 300 dollars to do. Now (bear with me here) I will tell you exactly why, from my perspective, this plan does the exact opposite of what it was intended to do.
First of all, my husband and I studied our possibilities when this bill came out, and talked over whether or not we would go with it. We determined that it made absolutely no sense for us to trade in a vehicle that still runs, and has been mostly reliable for 14,000 dollars (or more) worth of debt. Sure, we would get 4,500 dollars toward a new vehicle, and since we have no air conditioning in the Jeep, it would certainly be welcome. But, the truth of the matter is, we would trade in something that we have completely paid off, and that has a low registration and insurance, for debt. And not just any kind of debt, but the kind that doesn’t go away for years, and the kind that is purely for a luxury. A new car is not a necessity, especially when you have one that already runs sitting right outside.
Now, that is just on a small scale. Then, we started to discuss how this would impact the nation. First thing that came to mind for me was, the “housing bubble” effect. In two or three years, people will really start to realize the effects of car payments. I am going to assume that most of the people taking advantage of this bill are people like us, people who have only ever owned “clunkers” and haven’t really experienced car payments. I am also going to assume that most of these people don’t realize how expensive insurance and registration is on new cars, and that most of these people have kids. Therefore, the short term effects are great, and there is a sense of euphoria that comes with owning a new car, but the long term effects are potentially devastating, and as sad as it is, a lot of these people will probably end up having their cars repossessed.
I also realized, it is going to be harder for people like me, people who keep their older vehicles, to find parts because of this bill. My starter and alternator were so cheap because they were old ones that had been “fixed”. But now, if these vehicles that are being traded in are to be scrapped (which is what the bill requires, to my knowledge), then parts to fix these vehicles are going to be rarer, and therefore even more expensive. Which of course means, it costs the really poor people who own these vehicles even more money just to own them.
And then we get to the obvious negative effects; those on the used car salesmen and the small mechanics shops. I can only imagine how detrimental this will be for the little people, the ones in small towns who run mechanic and parts shops. If people own new vehicles, they have to take those new vehicles to the dealerships to get fixed. A huge part of the reason I bought my 1988 Cherokee was, I knew how to work on it. If something went wrong, I just had to listen and my car would tell me what the issue was. I knew when it wouldn’t start, it was the starter. I knew when I heard a loud popping noise and looked in my rear view mirror to see a large puddle of water on the ground that it was one of my radiator hoses. These newer cars though, they aren’t so simple. They have computer chips in places I never thought computers could be. And that means in 5 years or so when something goes wrong, the people who bought these new cars are going to have to shell out loads of money to have the dealer tell them they need a new serpentine belt.
Last of all (and I will admit right off the bat that this is an even more subjective statement than the ones above) it kind of frightens me to see the government interacting with the private sector in such an abrasive matter. I feel that the government should stay out of businesses, especially when it means that they go to a tiny town in the middle of central California, and tell the owner of a Ford dealership that he has to offer a particular incentive to anyone who comes in who meets a particular criteria. Again, I realize that this is just my opinion, but I want to know your opinion as well, because I hope to learn more about this bill and how it effects the American people, either positively or negatively. Please comment and let me know how you feel about my article, and about this bill in general.