Cash for Guzzlers
July 1, 2009
By Scott Lewis
Is the Cash for Guzzlers law worth it? Right off the bat I want to YELL YES! But I can't help wonder how bad this program is going to be.
Let's start by spelling out the basics of this new government backed incentive program. The goal is to get gas guzzling vehicles off the road and stimulate new car sales. You can get a voucher for $3,500 - $4,500 toward a new car purchase. Here are the main points:
Let's start with that last one. The vehicles turned in with this program will be crushed. This has been done before. There have been crusher laws to get people to turn in old cars for cash to remove these cars from the roads. That was bad for car enthusiasts that saw that law as a way to remove restoration fodder. Plus those programs were abused when companies were allowed to turn in the clunkers for environment "credits" for their factories. It did nothing for the environment to take a car sitting in a field (and not actively polluting the environment) and allow an active factory to turn that car in to be crushed so the factory did not have to clean up its factory.
We escape those pitfalls this time by requiring people to own and insure the cars for a year before trading them in. In fact, as I see it there are no loop holes for companies to abuse this new guzzler law. Let's hope that much is true.
By making this program available to cars 1984 and newer we also save all the classics that could find homes with restorers some day. Granted, there may be some cars from this era that some people consider classics, but that is less true of cars from the 20s - 60s. I would not want a Buick Grand National or Monte Carlo SS turned in for this program, but that is a possibility. Don't forget that Pony Cars were still popular cars in this time. With Mustangs and Camaros both in dealerships now it is sad to know that some Mustang GTs and IROC Camaros could be crushed. No program is perfect.
I have addressed the issue of cars that we may not want to see crushed, at least from an automotive enthusiast's point of view. But the cars turned in for this program will be crushed. That leads to the biggest problem with this program. If the cars are to be crushed who would turn the car in?
I ask that question because the crushing of the cars means there will never be a buyer for it. So the dealer gets nothing for it but the voucher money. By the way, the voucher money goes to the dealer, not the person trading in the car.
This means that the voucher is your trade in value. This becomes a huge issue. Why would anyone trade in a vehicle worth $3,500 to get a $3,500 voucher? This is not an incentive to increase traffic into dealerships... something desperately needed. It is only a chance to get the least valuable cars being driven off the road.
Remember the first item above, this program is for new cars only. How many people out there are driving a car worth significantly less than $3,500 that want to buy a new car? It has been my experience that if someone drives a car to the point of being so low in trade-in value they are more likely to buy another used car when the current one stops running. You cannot get a used car, not even a 2 year old Prius that gets over 40 mpg.
Since this guzzler laws seems to be targeting the lower end of the economic scale, what if people can't afford to finance a new car, even with the incentive? Will this make the trouble the financial institutions are in even worse should a bunch of people have to have their cars reposessed?
Let's look at my own guzzler. I have a 2001 Acura MDX that has a combined EPA rating of 17 mpg. So it is eligible for the guzzler voucher. I checked on fueleconomy.gov and I could get a 2009 Mercury Mariner 4WD that gets a combined mileage of 21 mpg and still receive the $3,500 voucher. So I trade in one SUV for another. I may get a bit better mileage, but not enough to really impact the environment.
I looked up my Acura MDX on KBB and NADA. KBB lists my Acura at $4,950 in good condition. NADA is better, listing my MDX at $6,600 for Average Trade-In. Why would I bother with the voucher when trading this car in the regular way is better?
The $4,500 voucher is virtually worthless. Using my gas guzzling SUV as an example again, I tried to find cars that I could trade for on fueleconomy.gov. When I tried to look for an "upscale sedan" that got 25 mpg their site came back with nothing. Oops! Kind of makes it hard to want to trade in a luxury SUV for a car. I even looked at coupes and only 1 coupe showed up on the site that got over 30 mpg, the Smart FourTwo. There were 4 coupes that got 26 mpg, but none of these would qualify for the $4,500 voucher as I need to get 27 mpg with the new car. In fact there were precious few cars that got combined mileage of 27 or more. Mostly hybrids like the Toyota Prius, Honda Insight and Ford Fusion. Good cars, but not something a luxury SUV owner is likely to trade down for.
How many people do you know that own a car worth significantly less than $3,500 that they have had continually insured for a year? And how many of them want a new car? Probably none!
In the end I like the idea of a guzzler law, especially over throwing a lot of money at short-sighted manufacturers. I just don't see it making much of an impact and it is not enough incentive to get a wave of people to start buying cars.