Cash For Clunkers: Was It Worth The Cost?

The dust has barely settled since end of the popular government Car Allowance Rebate System (CARS) program, and analysts are already busily weighing the risks, benefits, costs and payoffs involved. According to the latest tally, 642,277 vouchers were filed for participants, and checks for $2.7 billion are due to be paid to the dealers.

Critics of the program claim that it was doomed from conception; they claim that risk it placed on both dealerships and buyers along with the cost to the American taxpayer were simply too great.

Lisa Margonelli wrote recently about the situation in The Atlantic. Ms. Margonelli is a senior research fellow with the New American Foundation. “We could have gotten a lot more,” she says.

Many financial experts feel that the $4,000-$4,500 taxpayer price tag on each voucher renders the system an automatic failure as “economic stimulus,” which is how the program was presented to the public.

Margonelli went on to explain: “Consider this: C4C only required a fuel economy increase of 2 mpg over the original car. The auto companies can raise the fuel economy of cars on the assembly line by that much at a cost of $500 per vehicle. So, we could have given our $2.87 billion to the auto companies to upgrade 5.5 million cars by 2 mpg or more.”

President of Consumers for Auto Reliability and Safety in Sacramento (CA), Rosemary Shahan, said, “The taxpayers gave the dealers a $3 billion gift.”

Even more discouraging are the stories of fraud that seem to pop up almost daily. For example, there is the story of Tara Bui and Dan Hoang, who believed they were participating in the Cash for Clunker program by trading their 2001 XTerra for a voucher from the CARS program at Volkswagen of Garden Grove. They were shocked to find it later on the sales lot for the dealership, which claims that it accepted the car as a trade in and not as part of the voucher program.

Dealerships have also fallen victim to the flaws in the program, having to decide which vehicles qualified for CARS knowing that fully understanding the hundreds of pages of regulations and guidelines governing the program was a virtual impossibility. Many of them are still waiting to receive thousands of dollars from the U.S. government for their voucher submissions.

Some consumers have been prohibited from taking possession of their new vehicles until the dealership receives its reimbursement from the Department of Transportation.

Others claim they were required to sign paperwork committing them to payments of thousands of dollars should their voucher not be approved. Such deals were made by dealerships not following the guidelines, and many consumers are now wondering if they will be without a vehicle or required to pay large amounts of cash as a result of their participation in the program.

For the taxpayers footing the bill, the risks are now more than evident. In some instances, it seems that some dealers may have collected double the money on early vouchers that were submitted, rejected, then resubmitted and accepted. In some cases the fear is that the dealers collected from the buyer as well as the government.

However, many dealerships have only positive reviews of the program. The California New Car Dealers Association had government statistics on its side when it emphasized the positive aspects of the program: “84% of trade-ins under the program are trucks, and 59%of new vehicles purchased are cars. The program worked far better than anyone anticipated at moving consumers out of old, dirty trucks and SUVs and into new more fuel-efficient cars.”

Furthermore, the dealers say that the purpose of greater fuel efficiency was well served through the CARS program. The average clunker trade-in had a fuel-efficiency rating of 15.8 mpg, while the new replacements averaged 24.9 MPG. They said, “Cars purchased under the program are, on average, 19% above the average fuel economy of all new cars currently available, and 59% above the average fuel economy of cars that were traded in. This means the program raised the average fuel economy of the fleet, while getting the dirtiest and most polluting vehicles off the road.”

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