September 09, 2009

Cash for Clunkers Micro-Economies

The basic goals of this federal initiative were to stimulate the economy while moving more Americans to eco-friendlier cars.

The premise: If you trade in your old, broken-down gas guzzler that gets <18 mpg and move up to a certain MPG-approved vehicle, the federal government would subsidize your trade-in, up to $4,500.

So, now, broken-down trucks sitting in a parts dump were potentially worth $4,500. Do you think any micro-economies developed over this initiative? For example, none of my cars currently get under 18 mpg. But, if I was in the market for a new car, purchasing an old junker at anything less than $4,500 would be worth my time.

2 comments:

Micah said...

The only problem is you have to have owned the clunker for at least one year. I wonder how many of these people with new cars purchased through the program will default. Considering their clunker was possibly paid for or at least a very low payment and now they have a $300/month payment. More subsidized irresponsibility.

Eric Olsen said...

ah, that's interesting, Micah.

I guess the new micro-economy would be hiring people with old cars to sell theirs, buy a new one and immediately sell it to you.

If my car's worth $500, and the process gets me $1,500, I think I'd do it, and the real buyer would still be $3,000 up.