Why Is the Cash for Clunkers Program Controversial?

Why is the Cash for Clunkers program controversial?

After writing about the so called “Cash for Clunkers” program a few weeks ago when it was announced, I was stunned to find out that there was a contingent of people who were against the program. Some people are using it to make a case against the entire Obama administration and their economic policies — still others point to this piece of legislation as unneccessary government subsidizing. As usual, both sides have valid points.

You know about the “Cash for Clunkers” program if you’ve had the news on the past week or so — the Federal government has decided to hand out vouchers of different amounts to people for trading in their old or inefficient cars for newer models with better gas mileage. It is a sort of “fleet modernization” that is unparalleled in American history.

First, a positive sign for the American economy — nearly half of the vehicles sold to this date under the “Cash for Clunkers” buyer incentive program put money in the coffers of General Motors Co, Ford Motor Co and Chrysler. That’s right — the big three automakers performed way above average among people purchasing a new car with the government incentive money.
Cash for Clunkers program

Other information about how the “Clunker” program has fared so far — small passenger cars accounted for 60 percent of the nearly 90,00 sales during the first week of the program, this according to numbers reported to the government by various retail dealers through this past Saturday. It is a good sign that Americans are looking smaller in terms of their vehicles — smaller cars are generally more fuel efficient. So far, the top selling car among buyers using the incentive program is the Ford Focus.

This represents the first major assessment of how the program is working out at the consumer level. Remember that some consumers are offered a voucher of $4,500 to trade in those clunker vehicles for more efficient models. It is good news that Americans are putting their faith back in American cars. And remember when everyone on Capitol Hill was shouting about those “big 3” manufacturers being a major piece of the American economy? Guess what — the program’s working for them.

According to Obama administration officials, the “Cash for Clunkers” incentive will prove to be a major economic stimulator during a nasty recession. Those some officials are putting heavy pressure on the Senate to approve a proposed $2 billion extension of the program by the end of this week. Without the additional money, says Obama and company, the program will die on the vine. Obama’s already won half of the battle — the House of Representatives voted in support of the extension package late last Friday. We’ll have to wait to hear what the Senate thinks about an extension — that chamber won’t consider the extension measure until the middle of this week.

Those who oppose the “Clunkers” program think of it as another form of the bank bailouts that caused so much controversy last year. You can tell them until you’re blue in the face that “Cash for Clunkers” isn’t anywhere near as expensive a program for the taxpayers, but they will cling to their “subsidization” argument. $1 billion might sound like a huge incentive program, but the payouts to financial institutions amounted to $2.5 trillion and climbing. These same detractors will admit that the program has caused renewed auto sales and put people in the doors of dealerships. They’ll admit that the timing of the incentive program was perfect for struggling auto manufacturers.

What they’ll also tell you is that some recent analysis made of the program by non partisan economics forecaster suggests that the program will have no noticeable impact on the actual number of car sales. In other words, these were car sales that didn’t depend on the voucher — rather, these vouchers hit some consumers when they needed it most, when their older less fuel efficient cars needed replacing anyway.

The “Cash for Clunkers” program is also being cited as a perfect example of the Obama administration’s lack of understanding about the economy — critics say that “Cash for Clunkers” borrows money from one source in order to stimulate a bit of economic activity — and even worse, that this stimulation “borrows growth” from the economic future. In short, critics of “Clunkers” warn that your future tax hikes will pay for your current “new car voucher”.