GN Commentary: August 27, 2009 - Cash for Clunkers: Worth the Price?

The "Cash for Clunkers" program may have helped sell some cars, but one thing's for sure: the energy problems aren't going to be magically erased by this government program.

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Video Transcript

So did you cash in your clunker? Or are you still clunking? Nearly one half million gas-hogging cars were traded in under the government's "Cash for Clunkers" program, which ended Monday night.

It worked like this: if your car got below a certain mileage in fuel usage, the government subsidized the sale and replacement of your old clunker, with a new, more fuel efficient model. The subsidy came in at $3,500 or $4,500 per car, and it generated lots of interest in car dealers' showrooms.

By some estimates, the average mileage per gallon of "clunkers" turned in was 15.8, while the replacement vehicles yielded a "greener" average 25 mpg. But the effects of the now-ended program are debated.

For one, the removal of the clunkers from the road has had the effect of pushing up used car prices, which of course impacts poorer drivers. Also, car dealers reported that most of the new cars purchased under the program were imported brands, while about 80% of the "clunkers" were domestic branded automobiles.

What's more, even counting the more than 460,000 fat cars now out of commission, that's barely a dent in the total 136 million cars on the roads of the United States. And with a total price tag to the government of $3 billion. Oh, well, with the federal deficit this year now estimated at around $1.6 trillion, I suppose we can just "put it on the tab."

It may have helped sell some cars, but one thing's for sure: the energy problems aren't going to be magically erased by this government program. With much of our imported oil now coming from unstable parts of the world, and a tight world market for hydrocarbons expected for years ahead, we can expect the cost of running a car to remain high—clunker or no clunker!

For GN Magazine, I'm Ralph Levy.