Cash for Clunkers Should be Called Cash for Auto Industry

Nicolas Loris /

After passing in the House, the stage is now set for a Senate vote to pass the “Cash for Clunkers” bill that would offer up to $4,500 to trade in a used vehicle for a new one. Although the idea sounds good on paper, we’ve outlined a number of problems with the bill: Consumers typically replace clunkers with slightly newer clunkers or used cars, the program would distort the used car market by reducing the supply of used cars at a time when demand has been increasing, the voucher exceeds charity tax deductions for used cars, the environmental benefits are dubious, and its estimated cost of $4 billion is largely unfunded:

But the $1 billion set aside for the auto-purchase program is far short of the full cost of such an effort, estimated at $4 billion. The $1 billion is expected to fund the program through Sept. 30, the end of this fiscal year, according to two congressional sources close to the negotiations who asked to remain anonymous.

This week, Sen. Debbie Stabenow, D-Lansing, who sponsored the Senate version of “cash for clunkers” legislation, said she was comfortable with winning approval for money to start the program, with the idea that additional funding could be approved later.