by Tina Hartley

Created on: June 27, 2009   Last Updated: July 31, 2009

The Cash for Clunkers program, renamed the Car Allowance Rebate System (CARS), is touted as being environmentally friendly and an aid to the ailing auto industry. Will this program herald in a boost for auto manufacturers? The answer is a resounding no. The incentives offered to consumers are meant to encourage the purchase of new, more fuel-efficient vehicles. There are more disincentives in this program than incentives.

For those who doubt the legitimacy of my stance on this program, please visit this following link and watch the reality of the unnecessary and smoke-belching total destruction of the engine of a vehicle turned in to a GM dealer under this rebate program. In order to participate in this program, the engine must be rendered completely useless so that no parts may be re-used. There are not recycled!

Destruction

Since the 'clunkers' traded in under this program are earmarked for destruction, the dealership will lose any re-sale value above and beyond the program amount. The amount of the rebate offered to eligible consumers is from $3,500 to $4,500, dependent on the increase in mpg between the trade-in and the new vehicle.

In the event a person driving a 2000 Cadillac Escalade is interested in purchasing a 2009 Chevy Cobalt, he or she would certainly be eligible for this rebate program. There will be a significant difference in fuel economy and this Escalade owner will be eligible for the highest rebate amount of $4,500.

However, the normal trade-in amount for this vehicle is $6,000 - $7,000, according to Kelley Blue Book values. The private party re-sale value is $8,000 - $9,000. This consumer can expect no more than the rebate amount and loses money. The dealership loses money since this vehicle must be destroyed. This is a lose-lose situation.

A consumer driving a 1989 Crown Victoria would certainly be eligible for this rebate program. Many new cars on the market will have a significantly lower mpg than the Crown Vic. However, it's not very likely that the owner of a 1989 Ford is prepared to take on the expense of car payments and increased insurance costs.

Additionally, lower-income consumers who are not able to afford a new car will likely see an increase in repair costs on their older vehicles if this program reduces the amount of used parts available. Small businesses such as independent auto repair shops will also likely be negatively impacted.

On a side note: if there is indeed an environmental impact due to this legislation, it is likely to be negative instead of positive. All trade-ins generated from this program must be destroyed. The National Highway Traffic Safety Administration (NHTSA) has yet to publish the specific requirements as of this writing, but the CARS Act clearly states no engine or drive train parts will be permitted to be re-used.

This will impact the re-manufactured parts industry and any industry that continually replaces parts in fleet vehicles. Companies and consumers will be forced to buy new parts, thus increasing their overhead. A recycled engine saves 261 kg of carbon dioxide (CO) emissions in comparison to the manufacture of a new engine, according to the Automotive Recyclers Association.

There are very few scenarios where a consumer will benefit from and have the resources for participation in this rebate program. The Cash for Clunkers program, or the Car Rebate Allowance System is not an indication that now is the time to invest in auto manufacturing.

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