What is Cash for Clunkers?

Cash for clunkers was a US federal economic program established and executed in an effort to promote American car sales by providing a rebate to people who traded in older cars for newer ones. The program was created in an effort to achieve two separate yet somewhat related goals, one of which was to promote spending and try to ensure that America did not slip into a deeper economic downslide. Cash for clunkers was also established with the intent of reducing carbon dioxide emissions, by allowing people to trade in cars that had worse gas mileage than those being purchased.

Officially known as the Car Allowance Rebate System (CARS), cash for clunkers established government rebates for car dealerships that accepted certain vehicles in exchange for newer vehicles. The rebate was issued by the government to the car company, and this was directly passed on to car buyers as a reduction in the price of the new car. In order to take advantage of the cash for clunkers program, however, the cars being traded in had to meet certain criteria and the new cars also had to qualify for the program.

Cars traded in as part of the cash for clunkers program had to be under 25 years old, have relatively poor gas mileage, and could only be traded in for a purchase or minimum five-year lease on a new car. The vehicles purchased through this program had to have fairly high gas mileage ratings and a suggested retail price of $45,000 US Dollars (USD) or less. Cash for clunkers ran from the beginning of July 2009 through 24 August 2009, and was initially granted a budget of $1 billion USD. This initial amount was estimated to have been used up by the end of July 2009, and so another $2 billion USD was allotted by Congress at the beginning of August 2009.

With each trade-in, a credit of either $3,500 USD or $4,500 USD was issued, depending on fuel efficiency and the type of vehicle purchased. The entire program generated more than 690,000 car sales and trade-ins with about a 60% increase in fuel efficiency between trade-ins and new vehicle, which defenders of the program point to as significant stimulus and spending in the midst of an economy that was otherwise performing poorly. Detractors of the cash for clunkers program, however, point to the fact that more than half of the new cars purchased were from foreign companies as evidence that it did little for the US economy.