If you were around in 2009, you may have noticed oodles of “Cash for Clunkers” advertisements. That program was the brainchild of these government programs:
- US Environmental Protection Agency (EPA)
- Department of Transportation's (DOT)
The goal of the program was to increase fuel efficiency by replacing 10+ year old cars with new vehicles. In order for someone to receive the benefits from the program, they needed to trade in their old vehicle at a dealership. This was the EPA’s and DOT’s attempt to stimulate the struggling U.S. economy and to improve the environment.
The Cash for Clunkers program was supposed to be a win-win situation for the economy and the environment. How did it turn out? Did the program meet everyone’s expectations? Let’s find out!
How The Cash For Clunkers Program Worked
Image Credit: Jonathan Ernst/Reuters
The Cash for Clunkers program was a government program that gave people money to trade in their old cars. Consumers would get a few thousand dollars for trading in their old car for a more fuel-efficient car.
Here is a quick run-down of the program:
- Car dealerships registered to participate in the “Cash for Clunker” program.
- Customers visited registered dealerships to trade in their clunkers for a new car that qualified.
- Government credit was deducted from the purchase price of the new car.
The amount of government credit a customer received depended on the improvement in fuel economy. For a car, if the improvement was 4 mpg or more, the consumer was eligible for a $3,500 credit. For an improvement of more than 10 mpg, the consumer’s credit would be $4,500.
The cars that were traded in were picked apart to collect the usable parts. Next, the cars were destroyed.
Which Cars Qualified For This Program?
On the first day of the Cash for Clunkers program, dealers all around the country received the rules of the program. The clunker needed to:
- Be drivable
- Be continuously insured and registered to the consumer for one year
- Have a fuel economy of less than 18 mpg
Also, the retail price of the new vehicle couldn’t exceed $45,000.
How Long Did The Cash For Clunkers Program Last?
On July 31, 2009, the "Cash for Clunkers" program began. The program ran until October 1, 2009. It was extended into November 2009 because of the high demand for the rebates.
Was The Cash For Clunkers Program Really A Success?
The program was a smashing success at first.
Only two weeks after the program started, at least 330,000 applications were received. The average benefit per application was $3,850.00. The total value at that point was more than $1.4 billion. The program received more applications in two weeks than it expected to receive for the entire period of operation. It expected to spend $1 billion in benefits over the entire three-month period. The US Congress ended up adding $2 billion more to the budget.
“Cash for Clunkers” was the #1 search word on Google. The program was too big of a hit, it might seem for the government. Nobody anticipated this to be so popular.
The Execution Of This Program Wasn’t That Great
Cash for Clunkers was a great idea. Consumers loved it. Yet, the “behind the scenes” operation of this program left much to be desired.
On the first weekend of this program, dealerships saw a 20% – 30% increase in new car sales. But, as they went in to submit the information required to get the refund, they found the website constantly down. It was due to the overload of people using the website.
Many dealerships waited weeks to be paid by the government. It’s because the National Highway Traffic Safety Administration (NHTSA) couldn’t keep up with all the claims that came in. They had to hire more staff to process claims. They ended up paying out all the claims. But it was quite hairy for a while right in the middle of the program’s tenure.
Cash For Clunkers Didn’t Really Help The Environment
This program put hundreds of thousands of fuel-efficient cars on the road. Yet, it didn’t really help the environment. For every shiny new fuel-efficient car put on the road, there was an old car that went to waste.
The old cars weren’t recycled as much as people thought. Often times, dealerships destroyed the engines in these cars and then sent them to the landfills. They loaded up the engines with sodium silicate and then ran them until they seized. These engines would end up in the landfills. That was not only wasteful, but it was also harmful to the environment. The sodium silicate would end up in the soil and perhaps the local water supply.
If the government decides to roll out another Cash for Clunkers program, we hope they’ll do it better this time.