Is 'cash for clunkers' a practical program?
Critics say some won't be able to afford new car — even with rebate
Stuart Johnson, Deseret News
The idea of a new car with better gas mileage appeals to Carlos Valdez, but he's got a small problem: he can't afford it.
The 37-year-old West Valley City resident wants to sell or trade his 1992 Chevy 1500 that runs at 18 mpg for a new vehicle with better gas mileage. And like many Utahns, Valdez has heard about the federal "Cash for Clunkers" legislation that offers refunds for people willing to trade in their gas-guzzling clunker vehicles for new, economical ones, but even with the up-to $4,500 rebate, a new car is out of his price range.
"I have a lot of bills to pay," said Valdez, who recently moved from California. "The truck takes a lot of gas. I don't need a truck; I need a smaller car. But I can't pay for a new car."
For plenty of Utahns, adding a monthly car payment during a recession, when prices on everything from diapers to blue jeans are going up, is a luxury they can't afford.
With the U.S. Department of Transportation's Car Allowance Rebate System, or "cash for clunkers" program, people can trade in a registered vehicle that has been in use for at least a year with an average mpg less than 18 for a refund and new car. And for people with an old, beat-up vehicle that consumes gasoline by the mile, receiving a $3,500 government credit after purchasing a new vehicle that gets 4 mpg more than the last, and $4,500 for one that gets 10 mpg more, the program will help them save some money.
The program, which was given an initial $1 billion budget and expected to last until November, nearly ran out of money in less than a week. On Monday, the Obama administration asked the Senate to approve another $2 billion for the program to keep it afloat. Senate leaders expect the bill to pass.
Proponents of the bill point out that the program has spurred car sales across the nation — Ford posted its first monthly increase in nearly two years — but some have questioned whether the costs of the initiative outweigh the benefits.
One criticism is that the program leaves out lower-income families who still can't afford a new car even with the rebates, said George Cassity, president of First Class Cars, a Salt Lake dealership. The program also takes older, but still serviceable vehicles, out of commission that people with lower incomes could have purchased. According to the rules of the program, which seeks to take gas-guzzling vehicles off the road, once car dealerships have the clunker, they must drain the oil and pour solvent that locks up the engine. The car is then shipped to facilities to dismantle and sell needed parts.
"It's similar to if you went into a neighborhood with low-income housing and gave everyone $4500, saying 'We're going to burn the houses down and rebuild the neighborhood,' but the people can't afford it so they have to move," Cassity said. "When they came up with this program, they didn't look at who it hurts the most."
Yet Chris Mantas, CEO of Tear A Part Auto Recycling, said most of the cars he's seen as a result of the program — 150 in the last week alone — are not worth fixing.
"We're not getting these newer cars; we're getting a lot of garbage off the streets," he said. "No one's going to take in a 2002 unless it has 200,000 miles and took such a beating in the book value and the vehicle is already worn out."
But for someone like Chad Harris, a 35-year-old Holladay resident who repairs cars for fun, fixing beat-up clunkers is worth it to avoid purchasing a brand new car that, as he says, "depreciates as soon as you drive it off the lot."
"Its nice not having the car payment and being able to work on it myself instead of a computer," Harris said. "Besides, repair shops get really expensive."
If the program were to receive additional funding, repair shops could be hurt. New cars often come with 10-year warranties and repairs are typically handled by dealerships, not independent repair shops.
Zhiwei Tran, office manager for TSW Auto Service, said the shop out of Kearns sees about 12-20 cars on a daily basis for minor and major work, including transmission replacement.
"If a portion of customers buy new cars, they might not come in for repairs until after the warranty is up," he said.
However, Cassity believes the real problem is taking usable older models off the road — vehicles often used by teenagers and young drivers to get them by.
"No more cheap $3,000 cars for high school students," Cassity said. "My first car was $350, and it ran perfect for three years. It's just scary. They could spend this money in much better ways."
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