Cash for clunkers

A bill signed into law last month is designed to give American consumers an incentive to scrap their old gas hogs for fuel-efficient new cars. But will it really be the boon to car sales its backers claim, or will it wind up burdening folks who can’t afford new vehicles with higher car repair bills?

Kelley Blue Book, the Irvine, Cal. automotive information firm, surveyed new car shoppers about their views of the so-called “Cash for Clunkers” bill. The finding? A small but significant segment of U.S. buyers indicated they would, indeed, buy a new car sooner if the plan were enacted.

Under the proposed bill, any car or light truck with combined EPA fuel economy of 18 miles per gallon or less would qualify as a “clunker.” Owners of such vehicles willing to take part would receive a government credit worth $3,500 toward a new vehicle that gets at least 22 mpg. The credit would go up to $4,500 for owners who turned in a vehicle getting 18 mpg or less and bought a new vehicle that achieves 28 or more mpg. That credit amounts to as much as one-third off on some of the least expensive, higher mileage subcompacts – and that’s before any manufacturer’s incentives and dealer discounts.

For the plan to appeal to buyers, their so-called clunkers would have to be worth less than $3,500 if they planned to buy new vehicles getting 22 to 27 mpg, and less than $4,500 if they planned to buy new vehicles garnering 28 mpg or more. At values higher than those thresholds, owners could gain more cash by selling their older guzzlers outright.

On its face, the program would seem to appeal to a huge portion of car owners. But finding an offer appealing and actually acting on it are two different things.

“When you look at what really qualifies, you’ve got to believe there are a lot of cars worth less than $3,500 or $4,500,” says Kelley Blue Book executive market analyst Jack Nerad. “But are they owned by drivers with the inclination and wherewithal to buy a new car with significantly better mileage? Certainly some are, but it’s probably not as large a number as one might think.”

KBB research indicates that there are fewer vehicles on the road that get less than 18 mpg than might be assumed, he adds.

“As for pros, we believe it will foster some new car sales,” Nerad says. “First, it will provide some incremental purchasing among those who would otherwise not be purchasing cars. And second, it will probably move some sales forward. There are some people who would be in the market anyway and at some point would buy, but [given this incentive] they would buy sooner rather than later.”

KBB’s survey findings confirm these beliefs. While 38 percent of respondents said they would not be influenced by the offer because they didn’t own vehicles meeting the program’s parameters, 13 percent said they believed the program was applicable to them and would result in their being “highly motivated” to buy new vehicles sooner.

Another set of pros and cons centers on the issue that the older cars involved in the program would be taken off the road and scrapped, not resold. This carries a separate set of advantages and disadvantages. “The question is this,” Nerad says. “Is it better for the planet to make all these new cars to replace the old, less-efficient ones, or better for the environment to keep the less fuel-efficient vehicles on the road, because it’s an overall superior use of resources than building new cars?”

Rendering the topic still more complex is the impact on the little-known but crucial recycled parts segment of the automotive aftermarket. Car parts from starters to transmissions to engines to interior components like seats are salvaged, refurbished and placed back in service as aftermarket parts. “This would negatively impact that [industry], because it requires that the vehicles be crushed,” Nerad says. “You can’t salvage engines and other parts from them.”

United Recyclers Group, the Centennial, Colo.-based trade organization representing the nation’s automotive recycling industry, wasted no time turning thumbs down on the program. URG argues the proposal will decimate the inventories of used automotive parts millions of Americans depend on for car repairs.

With fewer of these parts available, the cost of auto repair nationwide will be driven higher, says URG executive director Michelle Alexander. “Why help one important industry at the expense of another?” she asks.

Even though Congress passed the Cash for Clunkers bill last month, all of the program’s details won’t likely be ironed out for some time. Expect all the pieces to fall into place by summer’s end, just in time for the start of the 2010 model year.