Saturday, August 01, 2009

Cash for Clunkers

While the main reason I disagree with the cash for clunkers program is the money spent, there are also problems with the way it was set up.

This program would have done the same good for the auto industry, and more good for eliminating the most environmentally unsound and gas guzzling clunkers if it had merely required that the cars have been registered for the last year, not necessarily by the same owner. The people with the very worst clunkers can't afford a new car at all. They will keep driving their $600 gas guzzling and polluting beaters, while a lot of $1500-$3000 cars with much better mileage and emissions will be scrapped. Once the program runs its course, there will be a shortage of cars in this price range for poor people to buy.

Had the program been more flexible, someone with a low-value car with gas mileage too good to qualify for the maximum incentive would be interested in trading for a "worse" car that would qualify for the full $4500. Even if he trades even for a car with a value of $600, he comes out ahead.

Meanwhile, the person driving the $600 oil-burning, gas guzzling clunker would also benefit as long as he does not pay the full difference in value between the cars. The environment and the country's fleet average would benefit, since now the very worst cars will be the most likely taken out of service, rather than the slightly bad owned by the middle class. Even if someone buys a beater just to qualify for the rebate, it still accomplishes the stated goals.

Am I missing something?

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