Cash For Clunkers Kicks Off To Cheers and Jeers

The Consumer Assistance to Recycle and Save (CARS) program, otherwise known as “Cash for Clunkers” program, which pays consumers to junk old cars and buy new ones kicked off Monday to cheers and jeers from auto companies, dealers, environmentalists and consumers.

The program pays consumers $3,500 to $4,500 for an old car that gets below 18 mpg for a new one that gets at least two miles per gallon more. The details of the program, and what cars qualify for trade in and purchase were issued last Friday after months of negotiation in the House and Senate. The delay on the program, some analysts believe, has held perhaps a few hundred thousand would-be buyers out of the market while they waited to see what the final rules looked like.

The distribution of the 100-plus-page document Friday triggered a registration rush by dealers that overwhelmed the government’s computers, resulting in waits of two hours or more, the National Automobile Dealers Assn. reported.

Car buying site Edmunds.com said its traffic has been at record levels in recent weeks. Ford got ahead of the issuing of the rules by creating a micro-site linked to Ford.com that listed all the cars that qualified for trade-in, new Ford vehicles that qualified and what the total incentive would be when combining the government rebate with Ford’s.

Chrysler began advertising a program to offer the $4,500 for a new vehicle whether the trade in qualified or not. Smart USA advertised for the first time since it began selling cars in 2007, with a newspaper ad touting that buyers could get a Smart “fortwo” micro-car model for $99 per month when the government program factored in. Hyundai dealers have been advertising that company’s lowest price car, the Accent, as buyable for less than $9,000 including the CARS rebate. If you go to Hyundai’s website, you can see that the base price of the lowest price Accent, after taking advantage of the maximum “Clunker” rebate would actually be less than $6,000. Wow!

“I think it is a very good idea because it is targeted to actually making a major purchase, which will help the economy,” says Smart USA CEO David Schembri.

Not everyone is thrilled. Dana Barrows, an Ann Arbor, MI tax preparer, says she would like to trade in a 1998 Subaru Legacy with over 200,000 miles on it, and buy a Honda Fit. But the Subaru doesn’t qualify as a trade in, with a fuel economy rating of 23 mpg. She would get no CARS rebate despite the fact the Honda she wants has a fuel economy of 31 mpg. “But someone can get thousands for trading a pickup in as long as they buy a pickup that gets 2 mpg more? Where is the sense?”

The program is funded with $1 billion of taxpayer money, and runs until November or whenever the money runs out. Congress is expected to consider passing additional funding in the Fall, but perhaps with tighter rules that would incent consumers to buy vehicles with even greater fuel economy than than the current bill calls for.

“The federal incentive of up to $4,500, coupled with automaker rebates and the auto sales tax deduction, puts a new vehicle within reach for many American families,” said NADA Chairman John McEleney, a multi-franchise dealer from Iowa.

Edmunds.com, which is benefitting from all the extra site traffic generated by CARS nonetheless issued a report Monday saying that each car bought under the progream would actually cost the U.S. tax-payer $20,000 per vehicle sold, not the $3.500-$4,500 actually paid out.

Edmunds figures that CARS will only help drive about 50,000 incremental new car sales. How is this possible? Edmunds.com’s research shows that typically 200,000 vehicles worth less than $4,500 are traded in for new vehicles every three months. At best the current Cash for Clunkers program will fund 250,000 such transactions in the same time period—a gain of only 50,000 vehicles, says the company. Given that this program is budgeted to cost $1,000,000,000, this increase will come at the cost of $20,000 per extra sale.