No one in Congress or the Obama Administration has suggested that the new Cash Allowance Rebate System (AKA cash for clunkers) program would serve as a permanent fix to what's ailing car dealerships across the country. What they hoped would happen is that by offering a rebate ($3,500 to $4,500 depending on the vehicle), consumers would turn in older gas-guzzling and polluting cars and trucks for new, more fuel efficient models. Based on some early results, it appears as though the program is working and could have worked even better had it been open to include a wider range of clunkers.
Steve Cook, owner of Cook Chevrolet Pontiac Buick in Vassar, Mich., said that the first weekend of the rebate program was the busiest his dealership has been in months. "I'm going to sell in a week what I sold in a month," he told The Wall Street Journal.
Mike Adamson, who owns three car dealerships in the Rochester, Minn. area, said sales had tripled at his Chrysler Dodge, Hyundai and Lincoln Mercury dealerships.
"It's way more than I could have anticipated," Mr. Adamson told the Journal.
Discussion Questions: Will the government's $1 billion "clunker" rebate program give car sales a short-term boost for a year or two? Will this be enough time (or not) for auto manufacturers and dealers to stabilize their businesses and look to a period of growth as the economy slowly improves?
[Author's Commentary] One of the biggest complaints about the federal program is the limited number of clunkers that qualify for the rebates.
A look at the government's website shows a 1992 Saturn SL1 with 255,000 miles is not eligible because it is estimated to get an average of 24 mpg. Now buying a new 2010 Toyota Prius, for example, with 50 mpg would be a significant improvement in gas mileage over the Saturn. Depending on the Saturn owner's finances, the $4500 rebate could be the difference between buying a new vehicle or hanging back.
On the other hand, a person could trade a mid-nineties pickup truck with similar miles on it for the same model in the current year. Under the government plan, the pickup owner would be eligible because the old vehicle got less than 18 mpg overall while the new version might get 25.
Obviously if the mileage between the two vehicles is in any way similar, the Saturn trade would make better sense for the environment and the nation's energy strategy while giving a bigger boost to vehicle sales since all cars and trucks that currently are eligible would remain so and new ones would be added. Of course, that isn't part of program.