Friday, July 31, 2009

Cash for Clunkers out of CA$H already?

It seems that the much debated program to incentivize consumers to trade in their gas guzzling vehicles, those that are at least 10 years old and get 18 mpg or less, for a new fuel efficient vehicle has been the best stimulus package to date. After less than a week, the $1 billion set aside for the “Cash for Clunkers” program is running out of money. I will have to admit that I was skeptical at first about how many people would take advantage of the program, being that the national unemployment rate is approaching 10% and tens of millions more people are having to take mandatory furlough days or have their hours reduced. I didn’t think that most people, who are struggling to make it through the toughest economic conditions since the Great Depression, would be able to fit a new car into their tight personal finances.

Taking another look at this, when you are getting a $3,500 to $4,500 refundable voucher for the program, and there are thousands of dollars of manufacturer and dealership rebates, this might be the right time to buy a new car or truck that gets more than 25 mpg. The original amount proposed for the program was $4 billion. Both the Obama Administration and the Congress will probably have to revisit this to add more money and extend the program. There are a lot of up sides to this:

    • It puts money into the hands of consumers to purchase a big ticket item.

    • These purchases will help save and even create jobs at a time when the nation continues to lose hundreds of thousands of jobs.

    • Those jobs saved or created will provide a desperately needed shot in the arm for the nation’s consumer confidence (people will spend more money).

    • The money spent by consumers, plus the money spent by workers whose jobs were saved or created, will begin to ripple through the economy (this is a good thing).

    • The newer, more fuel efficient vehicles will mean less money spent on gas and more money to spend on other things.

    • The higher fuel efficient vehicles will reduce the amount greenhouse gases produced by the traded in, gas guzzling cars, trucks, and SUV’s.

These are just my back of the napkin thoughts on the positives of the program. While consumer debt will go up a little bit, the money gained by overall savings at the pump, plus the jobs saved or created as a result of the program, will be spent on other things and even go to paying down other debts in the long run.

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  1. Agree with you - especially your point about the effects of the program rippling through the economy. Theoretically this is a great program and great idea. Like many, it has its kinks. But the higher we can get consumer confidence the better the economy will get.

  2. One kink was that it didn't have enough money in the program. I really don't see much down side to this economic stimulus program.