The Federal Government's Cash For Clunkers Program is unlike any government program that I have seen before - part environmentalism, part car dealership marketing campaign. But, in less than a few weeks the program has had a huge effect on the used car market. And, unfortunately, this effect can't be good for poor people looking to buy cheap used cars.
The government has given $1 billion of our tax dollars to encourage people to turn in their old "gas guzzling" cars for a new one that the government deems to be sufficiently gas friendly. But, what if you don't have a car that you can turn in under the program? What if you are in the market for a cheap used car yourself? The laws of economics tell us that it is going to cost more money to buy a used car today than it did before the Cash For Clunkers Program.
As you know, I love the teachings of Dave Ramsey and his Total Money Makeover. One of Dave's teachings involves paying cash for a car and only buying a car that cost the amount of cash that you have. If that means buying a $1,000, do it and start paying down your debt so that you can upgrade to a better car when you can afford it. For a lot of poor people, the cash for clunkers program is taking these cheap used cars off the market. As these cheap used cars are destroyed, there are less cheap used cars for poor people to buy.
I will use a worst case scenario for this article. Let's say that every person who participated in the Cash For Clunkers Program received $4,500 for his car. That means that 222,222 used cars have been taken out of the used car market and are on their way to being destroyed. That is a lot of cars. Now, that $1,000 car might be out of the price range of poor people.
So how did we think that this was a good idea? Well, like most government programs they are always started with the best intentions. I certainly don't believe that anyone thought, "Hey, let's pass the Cash For Clunkers Program and hurt poor people." But, that will be the result.
Unfortunately, I doubt that this will be the last program of this type we will see. Now that the government is in the car business, my guess is that we are going to see more of these marketing ploys from Uncle Sam. I just hope that poor people aren't hurt by the next one.
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{ 2 comments… read them below or add one }
This program has made it very difficult for me to find a decent car. Many of the cars on craigslist that all of these Obamaphiles are talking up are actually sold by curbstoners…
Jared you are not alone in your disdain for the Cash for Clunkers program. Millions of Americans are having a much harder time buying a good used car with so many “clunkers” taken off the road.
How elitist of government to characterize these cars as clunkers. While they might not drive 5 year old Fords and Chevy’s, millions of Americans do.