So all this week I’ve been planning to start a series of posts about the new “Cash for Clunkers” government rebate program which has just gotten underway. The program is designed to help stimulate the economy (and the auto industry in particular) by encouraging people to turn in their fuel-hogging vehicles (18 mpg or less) and purchase new, more fuel-efficient vehicles. It turns out I have a “clunker”–a 2004 Ford Freestar minivan (official EPA-estimated fuel efficiency of just 17 mpg) that I’ve really wanted to trade in anyway for several months now, for a new compact car (probably another Ford Focus, if I stay loyal to my sister’s employer). It’s too big for my needs now (I never transport all four of my kids at once anymore, now that some of them are driving their own vehicles), and it’s felt just plain wasteful for me to drive (just) myself to work in it. (And it doesn’t really fit in my parking space, either.) Well, it turns out the trade-in value of my Freestar, given its mileage and condition, is right around $4500–coincidentally the value of the government rebate I would receive under the Clunkers program.
So it’s pretty much a toss-up for my own pocketbook: I’d get a $4500 rebate credit under Clunkers for “trading” my Freestar for the Focus, or I’d likely get a $4500 trade-in credit from the dealer for literally trading in the Freestar for the Focus. But the outcome for society would be quite different under the two options: under the Clunkers program, the Freestar would have to be destroyed (insuring that it is “taken off the road” but also destroying any value still present in the decently-functioning vehicle), and the government (i.e., the taxpayer or rather the future taxpayer given the deficit financing of the program) would be giving me the $4500. Under a normal trade-in, someone would eventually get more utility than I do from driving my used Freestar (instead of zero utility from a bunch of shredded metal), and the $4500 would be paid by the dealer, not the taxpayer. So I’m thinking that ironically, a program designed to encourage us to be more socially conscious, might actually encourage me to be more wasteful with my Freestar. Not only would the government (future taxpayers) be paying me $4500 for something I would have done anyway (buy a new, fuel-efficient car), but the program would be encouraging me to “waste” (destroy) any remaining value in the old vehicle instead of transferring the vehicle to someone (the highest bidder) who values it more than I do.
As these MSNBC and CNN-Money articles explain, the Clunker deal is an especially “sweet” one if your old vehicle has a trade-in value considerably less than $4500. Then you (personally) are clearly better off participating in the Clunker program and having your vehicle destroyed. You’re also more likely to have been more anxious to buy a new car anyway (given the low value of your old car), and hence more likely to be getting this big subsidy without it necessarily changing your behavior (unless you would not have otherwise chosen a more fuel-efficient vehicle for your new one). And because it’s such a sweet deal for no doubt many people with gas-guzzling vehicles with trade-in values of less than $4500, it turns out many people seized the opportunity this week–so many that earlier this evening it looked like the government would have to suspend the Cash for Clunkers program (and perhaps spare me the social dilemma), less than a week after it got started. From tonight’s CNN-Money report:
NEW YORK (CNNMoney.com) — This much seems certain about the Cash for Clunkers program: Consumers are happy to take government rebates to buy new cars.
The fate of the $1 billion trade-in program was up in the air late Thursday over concerns that it may have already burned through its funds less than a week after it was launched.
Congressional sources said earlier in the day that the program would be suspended…
As of Wednesday afternoon, nearly 30,000 Clunker transactions had already been submitted to the National Highway Traffic Safety Administration, the agency said, with requests totaling almost $96 million in disbursements.
But later this evening (around midnight), the story was revised to say (emphasis added):
A White House official and a source at the Department of Transportation later said the program would not be suspended. The DOT official said the administration would try to work with Congress to find more funds to keep it going.
Indeed, one of the program’s main champions in Congress, Sen. Debbie Stabenow, D-Mich., called on the administration and Congress to appropriate more money for it.
So we’ll see how this turns out and whether I’ll be able to keep writing about my Freestar becoming a possible “clunker” after all. If the program isn’t suspended, the first thing I’ll need to do is see what the dealer would give me if I trade it in, the “normal” way. Stay tuned.