Cash for Clunkers Law Grabs Consumer Interest

Will the recently passed federal legislation that goes by the nickname “Cash for Clunkers” do much to aid the environment? Will it do much to limit our use of foreign oil? With all its environmentalist trappings, is it really designed to boost sagging new-car sales while the environment takes a backseat? You can argue those questions until the cows come home, but one thing is plain: The potential new-car buyers are very interested in the Car Allowance Rebate System, otherwise known as CARS. Enticed by the idea of the government offering them up to $4,500 for their gas-guzzling old car, they want to see if that dream can come true.

Market research and a scan of the general media makes that fact very clear. “Cash for Clunkers” is now on the radar screen of about three in four new-car buyers, according to a well-regarded consumer Web site. That is very good news for car dealers and car manufacturers, since the current market seems woefully in need of some sort of stimulus that will inspire consumers to buy. The serious buzz surrounding “Cars for Clunkers” could well be that stimulus, though there is the potential that consumers will be disappointed when they fully understand all the terms of the limited-time program.

One of the key facets of the program -- that the government will give vouchers worth up to $4,500 to owners of older vehicles toward the purchase of new, more fuel-efficient vehicles -- is pretty well understood. What is less understood is that the vouchers worth cash will go to the participating new-car dealer, not the consumer. Dealers are expected to pass on that largesse in the transaction price of the vehicle, but the question lingers: Will they? Car buyers are also much less aware of the other key element of the program: that the vehicles they turn in for the government bounty of $3,500 or $4,500 will be scrapped after they are delivered to the dealer selling them the new cars. Very simply, this means the cars will have no trade-in value. The voucher to the dealer -- $3,500 or $4,500 -- is all you get. This implies that dealers participating in CARS 2009 will have some explaining to do to customers walking in the door seeking to participate in the program.

On the positive side, a lot of consumers would like to partake in this program. That number might be perhaps as high as 25 percent, although it is almost certain that not nearly 25 percent of all new-car buyers meet the government criteria. For new-car dealers across the country who have suffered from a lack of traffic in the midst of this deep recession, that might constitute a half-full, rather than half-empty, glass. Not all of those who are interested in the program will find that the vehicle they own qualifies, but car dealers well know that increased traffic usually results in increased sales, because once the car-buying bug bites, consumers usually want to scratch the itch.