Edmunds critical of federal Cash for Clunkers program

Edmunds.com reported Monday (July 27) that the “Inconvenient Truth” about the federal Cash for Clunkers program is that each transaction could cost taxpayers $20,000.

With Edmunds considered the premier non-automaker authority on the auto industry, the report casts a negative light on federal program that is to begin today.

Cash for Clunkers — labeled by federal officials as the Car Allowance Rebate System (CARS) — was signed into law by President Obama on June 24, and is designed to get Americans to trade in older, less fuel-efficient vehicles for new vehicles that get better fuel economy by providing a credit worth up to $4,500.

According to Edmunds, the program divides cars, trucks, SUVs and minivans into several categories based on weight and size of the wheelbase. Vehicles that are traded in are to be crushed, not resold, and the sticker price of the new vehicle is not to exceed $45,000.

“Complexity, limited eligibility and minimal funding are common criticisms. But so far, the chief failing has been overlooked. Edmunds.com, the premier online resource for automotive information, has determined that even if Cash for Clunkers reaches its budgeted cap, the program will only help drive about 50,000 incremental new car sales, so each one will cost taxpayers a whopping $20,000,” Edmunds noted in its report.

Edmunds explains by noting that its research shows that 200,000 vehicles worth less than $4,500 are traded for new vehicles very three months. Edmunds predicts the best-case scenario will see 250,000 CARS transactions in the July 23-Nov. 1 program period, which means the auto sector will see only a gain of 50,000 new vehicles sold. With $1 billion budgeted to fund the program, the transaction per new vehicle comes to $20,000.

“The incremental sales will be limited and at a considerable cost. In effect, we are paying consumers to do something most would do anyway,” Jeremy Anwyl, CEO of Edmunds.com, said in a statement. “So as a stimulus, the program fails. One could make a slightly stronger argument about the environmental benefits, but even there, the program could have been better designed.”