Is Legislation a Clunker Itself?

The Cash for Clunkers legislation is to take effect this summer, but Edmunds.com has some reservations about it. Edmunds says there are certain aspects of the legislative effort to keep in mind. Such as: It will offer no more than $4,500 to new-car buyers. It will require the trade-in vehicle to be crushed (which means that owners will not collect any trade-in value). Cars to be scrapped would have

The “Cash for Clunkers” legislation is to take effect this summer, but Edmunds.com has some reservations about it.

Edmunds says there are certain aspects of the legislative effort to keep in mind. Such as:

  • It will offer no more than $4,500 to new-car buyers.
  • It will require the trade-in vehicle to be crushed (which means that owners will not collect any trade-in value).
  • Cars to be scrapped would have to have EPA combined fuel economy ratings of 18 miles per gallon or less, and the new vehicle purchased must earn better mileage.
  • The participant must have owned the “clunker” for one year.

“If you can get more than $4,500 for your vehicle, you're better off selling it or trading it in without taking advantage of the Cash for Clunkers rebate,” says Edmunds.com Editor In Chief Karl Brauer.

Edmunds has compiled a list of vehicles whose owners would benefit from pursuing the rebate. Those vehicles include:

  • '96 Honda Passport with a combined 15 mpg and $1,227 trade-in value.
  • '97 Lincoln Continental with a combined 18 mpg and a $1,179 trade-in value
  • '98 Chevrolet Silverado with combined 14 mpg and $3,378 trade-in.
  • '95 Audi A6 with combined 18 mpg and $1,261 trade-in.
  • '96 Toyota Land Cruiser with combined 13 mpg and a $4,042 trade-in.

“This legislation attempts to offer a benefit for the environment and to spur vehicle sales, but the reality is that it does neither very well,” says Edmunds.com CEO Jeremy Anwyl.

“In terms of vehicle sales, the only consumers who will be interested are those willing to take no more than $4,500 for their current car and yet be financially able to buy a new one — quite a narrow profile.”

He says the one-year ownership requirement is ill-considered. “If the goal is to remove old cars from the road, why should it matter who owns them and for how long?” Anwyl says. He notes that deleting this requirement could really stimulate the economy by prompting as many as three car sales per participant. The three sales would be:

  1. The sale of the clunker to the participant.
  2. The replacement of the clunker by its previous owner (likely a used-car sale).
  3. The purchase of the new car by the participant (necessary to qualify for the program).

In some states, this will even generate sales tax on all three sales, Anwyl says.

He also suggests the scrappage requirement be eliminated so that a larger population can benefit from the program. “If owners of newer, less fuel-efficient vehicles could get above a fair value for their trade-ins rather than just the government allowance, more people would likely participate and car sales might truly be reignited,” Anwyl says.

The environmental benefits of the program in its current form are not expected to be significant either, says Edmunds' Green Car Advisor Editor John O'Dell.

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