NCPA - National Center for Policy Analysis


August 10, 2009

The popular cash-for-clunkers program, recently extended by Congress with $2 billion more in federal incentives, requires that all the old fuel guzzlers traded in are scrapped -- not resold.  That means up to 750,000 vehicles will never find their way into the hands of another owner, says USA Today.

Though many are at the end of their useful lives, others, with years of life left in them, normally would be resold.  Those are the cars that lower-income families need, says USA Today:

  • Used car prices have risen about 5 percent on average in the last year, and fewer new car sales have meant a drop in recent-model trade-ins.
  • Car rental companies also have reduced supply by cutting their fleets; that's resulted in fewer castoffs for used car lots.
  • Now, the clunker program could cause prices to rise 5 percent to 10 percent more, especially for vehicles worth $4,500 or less.

The $2 billion added by Congress came after eager buyers churned through most of the original $1 billion in the first two weeks.  The program provides incentives of up to $4,500 to people who trade in an old car for a new, fuel-efficient vehicle.  But to prevent fraud, the program requires that all trade-ins be scrapped so the gas guzzler doesn't find its way back on the road.

Sen. Tom Coburn (R-Okla.), called that provision "nuts" and said that in his state, one trade-in had less than 10,000 miles on the odometer.

Used car dealers agree.  They say fewer older cars are at auction. And too few older cars at reasonable prices could put some dealers out of business, says USA Today.

Source: Chris Woodyard, "Clunkers program could drive used car prices up," USA Today, August 9, 2009.

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