Cash for Clunkers

History of Cash for clunkers

The very initial Cash for Clunkers programs was launched b y George W Senior in the year 1992 under the Clean Airs Act for getting super emitters off the roads altogether. This program was a continuation of earlier policies that were formulated to help reduce environmental pollution these regulations were the Corporate Average Fuel Economy (CAFE) established in 1975 by congress though it took effect in 1978. Typically, Cash for clunkers program would function by offering a cash payment to anyone dumping vehicle older than a specified model year. The cash would usually come from a company looking for pollution credits. The company buys credit in exchange of reducing pollution from its factory .This limited form of credit trading between scrapped cars and stationary facilities had the economic benefit of reducing pollution at less cost than otherwise, and the political benefit of making it easier to enact more strict environment rules.( Clarke 2009).

The program has been strongly supported by auto mobile makers as a way to hasten vehicle turn over and therefore sales of new cars by companies seeking relief from inflexible air quality rules, and by free market ideologies attracted to market based rules and incentives.

Again reality falls short of promise, how does one screen out the many old vehicles that are not super emitters and those that were going to be dumped soon? Cash for clunkers could prove to be a costly method for reducing pollution if appropriate procedures and tests are not enacted. At present, all ideas for implementing such procedures and tests are not enacted and appear expensive. Pilot projects were conducted in Delaware, Illinois and Los Angeles, but because of unresolved uncertainties on how much the vehicles were being driven, their actual emissions, how much they would have been driven if not scrapped, and with what they were placed a definitive evaluation of t heir effectiveness and cost cannot be made.


Cash for Clunkers

Even assuming the creation of cost effective screening, total emission reductions would be modest because very old cars are generally not driven much anyway, many supper emitters were not old enough to be captured by these scrapping programs and such programs tended to have a one time appeal. Their luster dimmed after the worst offenders were dumped. (Landis 2009)

Uniform emission standard

The program required every vehicle to meet the some performance standards, regulators succeeded in gaining huge reductions in emissions. The major concern about this standard was that it robbed off auto engineers and marketers of flexibility. It forced them to treat al vehicles equally ignoring the fact that emission control costs are lower for some types of vehicles, engines, and fuels than others, that certain pollutants are of greater concern in some regions than in others and that uniform emission standards may hinder the attainment of other social goals such as energy and green house gas reductions. The net effect of these flaws was a terribly inefficient system. This was later on followed by new standards which banned the production of vehicles with a lean burn combustion designs and two stroke engines. These innovations which had the potential to bring substantial saving s in energy and pollution are virtually precluded from the market because they cannot be easily meet. (Fekner 2009).

Besides the initial Cash for Clunkers program in the 1990’s the current government headed by President Obama on June this year re launched the same program with very few fundamental changes in fact it was very similar with the later apart from the fact that this one sought to be double edged as it had two aspects:

-The first aspect was that the program was intended to act as a stimulus package for the motor industry in the face of the escalating credit crunch.


Cash for Clunkers

-The second aspect was just as the 1990’s program where the government wanted to replace all the cars through the goodwill of the owners that had 18 miles per gallon with those of 22 miles per gallon. (Clarke 2009).

-Another requirement of the program was that for the vehicles to qualify for the rebate the car had to be less than 25 years old.

To achieve this government offered a rebate of $4500 or $3500 which depended with improved mileage of the new car, for an improved mileage of 5 mpg or more the rebate was $3500 incase he improvement was 10mpg then a rebate of $4500 was granted. This rebate was to be taken off after the manufacturers offer on discounts and other accompanying incentives.

The program run for four months operating on a budget of one billion dollars though congress later on increased the budget by a further two billion making the whole budget three billion worth. Overseeing the implementation and running of the program was the Highway Traffic Safety Administration which was also expected to give the guidelines. (Landis 2009).

Effects of the program

The success of the program could not be determined until a few months down the line when most of the data was out and car manufacturers had their sales records out. Besides the manufacturers records the consumers view also needed to be enlisted to determine how effective the program was.


Cash for Clunkers

The records released showed the following increases in the three dominant auto makers in the

US market:

Automaker                                    Percentage increase

Toyota                                                   19.4%

General motors


Ford                                                         14.4%

The entire program involved a sale of about 700000 which t many quarters was a significant effort to realize considerable effects on the environment and the economy.

The other aspect that was brought in to determine the success of the program was comparison with other countries that had run similar programs in the past. Top in the list was Germany which realized an increased sales volume of 30 % unlike the US one which averaged at about 3

% increase to these proponents the program was a failure. (Clarke 2009). Other critics of the program came up with the following arguments.

-That the whole program resulted to an increase in the public debt this they worked out by looking at the entire wage earners who totaled about 150 million these earners would each be required to contribute $20 at least not literally to raise enough cash to ensure that the total


Cash for Clunkers

individuals who bought new cars who totaled 700,000 got a $ 4000 rebate .This they argued would result to a total of 15 billion dollars in public debt.

-The other argument dismissed the program as another lame effort by the government to instigate public spending to cover up for the credit deficit within the industry and had actually nothing to do with the government’s intention to boost the automobile industry.(Buns ton 2009).

-The other was that the government was simply taking money from the already suffering Americans and handing it to the dealers this was by getting them to hand over their conditioned cars for dumping.

-The program was also argued to have brought to a halt most jobs of people who worked as mechanics for the now to be dumped cars. The other was the tow cars operators who now have to deal with job losses as no cars were there to be towed anymore.

-Criticism also resulted from the type of cars the government decided to offer rebates on these were the small cars, the proponents argued that to offer a good kind of stimulus to these auto makers vehicles with a greater margin such as SUV’s were to be included for the manufacturers to realize a favorable improvement in credit status.( Fekner 2009).

-Another was the people to realize the benefits of this program was not the common man but the unions, the person who forwarded this argument compared this with the 0% financing program that ran after the September 11th occurrences, he said the idea was noble but the intention of boos ting sales by attracting new buyers never succeeded and yet so much money was used. In the long-term he says the program was a total flop, he argues the same way the government failed then the same way it will and the end of the day the people to suffer are the taxpayers.


Cash for Clunkers

-The other bases of opposition was that the crashed cars most of which were in good condition would have been used in certain impoverished countries to help these people cater for several of their basic needs which range from medical to diet attentions.

-The other last arguments which I must admit makes a lot of sense is that the government spent $3 billion to boost sales up to 700,000 which statistically translates to 3% increase of the normal sales which were about 650,000 cars. Does it make sense? Spend $3 billion to sell 50,000 cars.

However it was not all bad for the program and in fact most people argue that it outlived its success and there could not be better way to achieve both economic and environmental milestones.( Clarke 2009).

These arguments were supported by the following arguments which were forwarded by the program implementers, country men, the automobile fraternity and economic as we as environmental analysts.

-The program will benefit the auto dealer all over America as there would be a direct sales increase as individuals seek new cars from the manufacturers due to the advances from the cash for clunkers program.

-The potential car buyers also stand to benefit from the program as they will be government


Cash for Clunkers

funded to help them trade their old cars for the new ones. Besides the new cars are bound to be more efficient and low costs of running the costs will result to savings by these new car buyers who are program beneficiaries.( Landis 2009).

-There will be environmental benefits to as these old cars are scrapped reducing the volume of green gas emissions, the emission will be greatly reduced as the program aims to get a million cars off the road and substitute them with cleaner cars. By this the release of green house gases will be curtailed and global warming somehow controlled.

-The other argument for the program is that these cars will result to lesser gas consumption which directly translates to energy saving in the United States.

-The success of the program is also hailed by many as it moved away from other programs which have serious bureaucratic channels and allocations made are first bundled in shelves waiting for such things as approval of certain structural personnel or other professionals. The program moved away from al that and the total $3 billion was directly injected in the economy. This enabled people to continue with production immediately especially those who handled various stages of auto production. (Fekner 2009).

-The program directly placed environmental responsibilities in the hands of the auto mobile industry though policy makers argue that this may not have been one of the aims it worked out perfectly by shifting the idea of implementing environmental policies to the motor industry which is one of the greatest carbon gas emitters. This gave the producers a chance to rethink their designs and produce more environmental friendly auto mobiles.

-There was general market awareness on automobiles and their operation capabilities this was


Cash for Clunkers

especially so as individuals sought information on various motor brands and their performance capabilities. The overall survey shows that the Toyota brand got the lion’s share of the purchases this as was later on discussed was due to the public’s opinion of the brands fuel consumption which is manageable. Though this worked Toyota’s way other brands also got a chance to showcase their prowess to the many potential buyers who turned up in their showrooms to check on the cars they would buy.(Buns ton 2009).

-The program undeniably brought focus on formulation of stimulus packages and the major areas of concern, as was sounded by an economist in the course of the programs formulation the focus needed to focus more on con summer spending. His greater idea was that the finances would have been directed to sectors that realize greater impact other than the single motor industry these other sectors he suggested would have been home improvement and appliance industries to broaden the effects. This focus brought about by the program would guide formulation and implementation of subsequent polices in future, especially those to do with the local economy stimulation. (Landis 2009).


For a program like this the formulators and the implementers ought to invest adequate resources on informing the public and all other stakeholders all the aspects of the program as well as addressing the entire aspects of it. Besides this other necessary details include the expectations of each of the players and a complete summary of the guidelines and regulations of the program.

For this particular program the government through the Car Allowance Rebate System (CARS) would have availed enough information on the type of cars that qualified for the rebates, adequate information was not the only question but it had to be timely to allow individuals time to act within the stipulated four months program period. (Fekner 2009).


Cash for Clunkers

Also necessary for the program was the working out of modalities with the car dealers on how the rebates would be processed and availed in time to help in the running of the industry and sustain production because failure would not only lead to a failure in the short run but also total flop of the long-term goals.

The communication of the program started immediately after Congress approved the initial $1billion injection this was in July and the program was to last until November however the entire amount was utilized within the first two months which is a sign of good communication. However this was only from the buyers point of view the response of the government to the orders concluded by the manufacturers were not completed at an equally first rate which resulted to delays in payment to the manufacturers cum sellers. (Buns ton 2009).

This delay may be attributed to the lapse in communication between the government agencies and the car makers/dealers among the documented concerns were fears that:

-Reimbursements of about $4500 they had made to customers may not be handed this actually led to a large pullout of supporters of the program which watered down the success of the program.

-There was slow paperwork processing of the completed deals with a dealer at some point complaining that out of the five hundred deals he had made only paperwork of ten had been completed. This led to reluctance of the dealers to continue with the program and most closed the deals until completion of the pending ones.

-The fear also existed among the buyers that they may not get their deals complete due to the already pending deals.


Cash for Clunkers

These were some of the results of poor communication especially between the government and the dealers which hampered the popularity of the program. (Clarke 2009).

This program had some very noble intentions and the policy at least on book seemed attractive and proper implementation and adequate resource allocation would have led to the realization of a considerable number of perceived benefits. However the flaws that existed including poor coordination between government and dealers watered down the benefits and made the program unpopular something that would have been avoided.

This does not mean that the program failed but somehow indicates that proper ground work would have provided less points of criticism on the program and efficiency of the program would have considerably been achieved. The program in a very apparent way helped the customer more than it did the dealers. More than 700,000 customers got the new cars while the dealers realized an increment of a mere 3% in their sales, which was attributed to the program.


The success of any program is always dependent on the level of investment in the communication of the same. This is very apparent in the Cash for Clunkers program which never gave much emphasis in communication, and the results proves the need and success of proper communication as the customer turn out was excellent while the dealers contempt was low this is due to concentration in the customer end and ignoring the dealers end thus future programs should look at all aspects and place equal weight on them to ensure success.



Cash for Clunkers

Buns ton P, (August 2009).Fox Haven Journal-Cash for clunkers: Money for

New gas guzzlers, vol 8-09

Fekner J (2009). A journal of Incisive Ideas: Cash for clunkers vol 87

Landis T (2009). Spring field own Magazines: Cash for clunkers has shaky

Start, vol 8 issue no 4675

Clarke C (2009) The Atlantic: Cash for Clunkers Continuation, Vol 684 issue

No 45450