Is Cash for Clunkers Really "Cash Out of the Economy?"

Bob Barton, the president of the American Car Rental Association (ACRA) asks why vehicles built overseas qualify for the Cash for Clunkers program.  

A bizarre situation is unfolding with the Cash for Clunkers program. We see how much money is being spent-now up to $1.15 billion-but who's product is being sold? As I have said, if it is built in North America it should qualify, but why do vehicles that are built overseas qualify?

Take a consumer driving a 15-year-old truck, one that's paid for and runs. If he qualifies for a loan (that in itself could be a miracle) and then buys an import from overseas, the government sends the $4,500 overseas. For the next 60 months, the payments on the loan probably go overseas, and the consumer stops shopping because he now has a car payment he didn't have before. In this scenario, I would argue Cash for Clunkers is really "Cash out of the Economy," for five long years. 

I have heard two very interesting stories so far regarding this program. The first is from a dealer who tells me that 75 percent of the cash-for-clunkers sales have gone to Korean manufactured cars.

That's bad, but the better one is from my next door neighbor. He went to trade in his old Mustang that has 150,000 miles on it and is burning oil. You would think this is the perfect car for the program: it pollutes, gets lousy mileage and needs to be retired. The dealer told him it does not qualify for the rebate because the difference in the gas mileage from his car to the new Mustang he wanted wasn't great enough. He couldn't understand, as it is getting about 10 mpg on his oil-burning, 150,000-mile car. 

Why won't it qualify? The determining factor is not what his car currently gets in fuel economy, but what the published EPA rating was at the time he bought it. You have to be kidding me--if everyone got the EPA miles that they used to, why would it be called a clunker in the first place? 

One of these days "car guys" will be consulted in developing these programs. I just wonder what the UAW worker who is about to lose his job thinks about his tax dollars being sent overseas to help someone else build a car that will compete with the car he used to build.

Originally posted on Business Fleet