Cash for Clunkers Shifts Into Second Gear

The House of Representatives has voted to allocate an additional $2 billion toward the Cash for Clunkers plan to revitalize the auto industry, after pent-up demand for new cars exhausted the first billion in a matter of days. This is good news for the hobbled car companies, which need a lift after auto demand fell to its lowest level in a half-century. But is Cash for Clunkers really a good deal for Americans?

I can't say for sure, because I don't have a list in front of me that appraises the actual value of every car, truck and SUV traded into the government for up to $4500. But I share the skepticism of some commenters from my last post. If your "clunker" is still worth, say, $2000, giving the government your vehicle might net you $2500 (rebate of $4500 - value of $2000 = $2500). If you put that toward a new Ford Hybrid at $23,000, that still leaves you with a price tag north of $20K. That's not a huge difference, and for Americans still paying down debt, they might be better off looking for a used vehicle.

I can't appraise the value of every rebated car, but I can try to appraise the value of program. And I think it has issues. By refusing rebates for cars with MPGs over 18, the government is weirdly discriminating against consumers who were worried about fuel-efficiency before the government turned that virtue into a $1 billion sweepstakes.

What's more, C4C is sweetened in favor of SUVs. Let's say you want to trade in your old vehicle for either a car with a 2 MPG improvement or an SUV with a 2 MPG improvement. The SUV will qualify for a $3500 rebate. The car won't. That means that even in 2009, after Detroit's slavish devotion to big cars spelled its downfall, we're still paying people to choose SUVs with worse mileage than cars. Even worse, Politico reports that Michigan senators are balking at the $2 billion extension unless the government lowers SUV standards to help them qualify for the cash. A billion dollars of cash giveaways later, our fuel economy policies are still going clunk.