Government Bounty on Old Cars a Good Idea?

When you see a sputtering old car in front of you with its bumper askew, paint peeling off and blue smoke wheezing out of the tailpipe, you no doubt think to yourself, “I wish we could get that clunker off the road.” Now, forces in Washington are marshalling behind this clarion call, seeking to offer government cash for down-at-the-heels older vehicles, all in the name of the environment and in an effort to spur the faltering new-vehicle market. But is a government bounty on old vehicles really a good idea? Will it do any of the good things that it is purported to do?

The auto aftermarket industry, auto parts manufacturers and auto hobbyists certainly don’t think so. And if they consider the issue with any rationality, most low-income families might not think so either. Why? Because a “Cash for Clunkers” program would prematurely destroy vehicles and their valuable components, denying more affordable used vehicles and used parts to millions of low- and middle-income families unable to purchase a new car even with a $3,000 to $5,000 government voucher helping grease the path. 

“For families that cannot afford the price of a new vehicle even with a government voucher, the Cash for Clunkers program would limit their access to affordable transportation, a must for most working Americans,” said Aaron Lowe, vice president of government affairs for the Automotive Aftermarket Industry Association. “Cash for Clunkers may sound good at first, but when you take a closer look, it is clear that the Cash for Clunkers proposal will negatively impact car owners, wasting billions of taxpayer dollars.”

Certainly you can see why the auto repair and modification industry would line up against the Cash for Clunkers plan. Many make their living by providing the goods and services to help consumers fix and improve their vehicles, while others sell used parts “harvested” from vehicles that have seen their last days on the road. Balling up these vehicles that still have value seems like a colossal waste to them, seemingly the antithesis of the desired effects of a proposal designed to curb pollution. Some new-vehicle manufacturers and new-car dealers, on the other hand, support some of the “Cash for Clunkers” proposals. But would such a program actually boost the sale of new cars and trucks? Steven Levitt, a University of Chicago professor of economics and author of the best seller Freakonomics, believes that is doubtful. 

“It also seems to me that any effect on the demand for new cars would be extremely limited,” he recently wrote in his New York Times blog entitled “Freakonomics”. “People who drive clunkers are generally not in the market for new cars. Presumably their replacement car will be a used car. The increased demand for used cars will lead to higher prices for used cars, which will push some buyers towards a new car, but the likely impact on new cars would be small.”

The U.S. Congress and individual states have considered Cash for Clunkers proposals in the past, and in most instances, the old-car hobbyists and parts suppliers have rallied against them and sent them to defeat. Oddly, many politicians and activists who consider themselves advocates of poor and middle-class families, though, are pushing for the passage of such a bill even though the unintended consequences would hit their constituents the hardest. With government money seemingly free-flowing these days, no matter the cost, we’ll just have to see where this one goes.