$3,500 for old cars

June 9, 2009

in Canada, Economics, Politics, The environment

Morty the bulldog, with tongue wagging

Automobile makers and dealers apparently want the federal government to pay people $3,500 if they give up an old car and get a new one. What industry wouldn’t want that? I am sure Sony would like the government to give $1,000 grants to anyone buying a new laptop, just like Apple would appreciate $200 grants for those replacing music players. The only justification for such a public subsidy is that the environmental damage done by the new cars will be lessened to an extent worth more than $3,500 to society at large.

Here are two ideas I think would be better:

  1. Offer anybody $500 in exchange for recycling any car, regardless of whether they get a new one or not. This would both lead to a reduction in the total number of vehicles out there (especially those in a very poor state of repair) and set a floor price on used-car sales. After all, nobody would sell a car for less than $500 if the government would give them that much to scrap it.
  2. Offer grants if people recycle and old car and buy a zero-emission vehicle, with the amount increasing along with the efficiency of the vehicle per passenger-kilometre. For instance, trading in a car might get you a $500 credit towards a bicycle, a smaller credit towards an electric scooter, and an even smaller credit towards an electric car.

Of course, the supporters of either of these approaches are a lot less politically influential than car companies and car dealers, making it unlikely that any government would embrace these approaches. Still, I hope this doesn’t emerge as yet another policy designed to extend the lifespan of yesterday’s carbon-intensive transport, production, and consumption. What we need are policies to help drive the economy towards modes of energy production and use that are sustainable and compatible with a stable climate.

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{ 27 comments… read them below or add one }

Alison June 9, 2009 at 10:14 am

Those are good ideas. No. 2 especially would encourage automakers to produce zero-emissions vehicles that people would want to cash in their grants for.

Another idea would be to offer people grants towards public transit passes.

(IMO, in an ideal civilized society, all transit should be free, quiet, fashionable, and fast. Traveling by car would be extremely gauche.. )

R.K. June 9, 2009 at 10:23 am

The only justification for such a public subsidy is that the environmental damage done by the new cars will be lessened to an extent worth more than $3,500 to society at large.

Even this isn’t really sufficient. Subsidy isn’t the only way through which governments respond to externalities. For instance, they won’t subsidize repairs to a vehicle that is spewing soot in contravention to air quality regulations. They simply mandate that drivers of such vehicles fix them, or keep them off the road.

Given the growing budget deficit, sticks are starting to look more appealing as policy options than carrots do.

Tristan June 9, 2009 at 11:53 am

No auto company is going to make EVs for a 500$ credit per car. They’ll make EVs if its the law.

Matt June 9, 2009 at 12:38 pm

I read about this in the news the other day, and was appalled at the potential waste of money this is. Why should tax payers subsidize someone else’s car?

What’s really disgusting is that car manufacturers say it will help the environment. I’m completely skeptical of this. For instance, I doubt my 18 year old car gets significantly worse mileage than a comparable brand new one. It’s probably only a few MPG at best. The energy it would take to A) recycle my car and B) build a new one, would be so much greater than me driving my car until it was well and truly dead as opposed to trading it in early and gaining a few MPG. We live in such a throwaway society, and cars last much longer than people seem willing to own them.

Furthermore, to address the economic aspect, if you make it attractive to buy cars this year with an incentive, wouldn’t that just cause sales to slump the next year? At best it delays the slump for as long as the incentive is offered.

Anonymous June 10, 2009 at 4:01 pm

“Given the growing budget deficit, sticks are starting to look more appealing as policy options than carrots do.”

This is ignoring the reality that the voting public holds the biggest stick of all. In a bad economy, requiring people to spend money they don’t have is political suicide. That’s why incentives that are good for both the environment and the economy are best options right now.

Tristan June 10, 2009 at 4:29 pm

This incentive program is stupid. Matt is right, the fleet economy has not improved. Cars are a disaster. The solutions already exist (public transport, Ev1, Zenn). The vast majority of improvements to the auto sector come because of, not in spite of, red tape which costs the industry money. Giving the industry money won’t help anyone. Buy the companies and re-tool them to build the cars we need. Subsidize the removal of cars from the streets, i.e. through more public funding of program’s like Montreal’s Bixi (but cheaper, please!).

Also, there is one thing that could be done that could really improve the overall consumption of fuel as well as the economy – mandate that insurance for autos be switched back to the old system, whereby you could insure 2 or 3 cars for the price of one given that only one would be driven at one time. This does not increase the amount of cars on the road, but it does increase the incentive of people with 2 big cars to buy another small car. Usually the cost of insuring another car is greater than the savings in fuel of using an SUV rather than a compact city car – so if you have to own an SUV for some reason (i.e. business), you end up using that same big vehicle for trips around town.

The Zenn is already being built in Canada. Change the insurance regulations to allow effective free insurance on it as a runabout, put some subsidy in place, legalize it for non highways, and it will sell by the tens of thousands.

. June 10, 2009 at 4:39 pm
Larry June 10, 2009 at 7:00 pm

You know, some people actually buy $500 cars to drive them! You can trade in a clunker to get a few thousand dollars back from the government, or you can save a lot of thousand of dollars by just making that clunker your primary vehicle!

Here are some tips on buying a $500 car.

. June 11, 2009 at 12:35 pm

‘Cash for Clunkers’ Car-Sale Plan Approved by House (Update1)

By Jonathan D. Salant

June 9 (Bloomberg) — The U.S. House approved legislation that would give consumers as much as $4,500 to buy new, fuel- efficient vehicles under a “cash-for-clunkers” proposal aimed at boosting auto sales.

The program, passed 298-119, would replace 1 million older vehicles with newer cars and trucks to reduce gasoline use and air pollution, according to the measure’s sponsors. Car owners would get a $3,500 government voucher for the purchase of a new vehicle getting 4 more miles per gallon than their old car. They would get $4,500 if the new vehicle improved mileage by 10 miles per gallon.

“We can free ourselves from the false argument that either you are for the environment or you are for jobs,” said the measure’s chief sponsor, Ohio Democrat Betty Sutton, on the House floor today.

Matt June 11, 2009 at 1:25 pm

The program, passed 298-119, would replace 1 million older vehicles with newer cars and trucks to reduce gasoline use and air pollution, according to the measure’s sponsors. Car owners would get a $3,500 government voucher for the purchase of a new vehicle getting 4 more miles per gallon than their old car. They would get $4,500 if the new vehicle improved mileage by 10 miles per gallon.

What prevents people from buying a barely running old clunker pickup for $300 and trading it in to take advantage of the $4500?

The government would be better off creating jobs by taking the $3,500/vehicle * 1,000,000 vehicles = $3.5B and spending it on clean energy. Building cars is not “for the environment.”

Milan June 11, 2009 at 1:30 pm

I agree. They could get a lot more greenhouse gas reduction by spending the $3.5 billion on upgrading the efficiency of buildings, or constructing solar thermal stations, or any of dozens of other things.

Milan June 11, 2009 at 1:30 pm

Hopefully the Senate and/or President will quash that House bill.

Tristan June 11, 2009 at 2:14 pm

Too bad our (president) and/or senate don’t have the (mandate)/stones to quash our house bill.

Milan June 11, 2009 at 2:21 pm

Which bill do you mean?

As far as I know, the only thing that has happened in Canada is the request made by the Canadian Vehicle Manufacturers’ Association and the Canadian Automobile Dealers Association.

I don’t think anyone has tabled legislation on it.

. June 11, 2009 at 5:38 pm

U.S. House OKs ‘cash for clunkers’; Will Canada follow?
Up to $4,500 voucher for car/truck purchase

Published: Thursday, June 11, 2009

The U.S. House of Representatives has approved legislation intended to spur auto sales by providing consumers with up to $4 billion in cash vouchers to buy more fuel-efficient cars and trucks. The move puts increased pressure on Canada to come up with a similar plan.

The bill, known as “cash for clunkers”, would give car and truck buyers up to $4,500 for gas guzzler trade-ins.

Supporters tout the potential economic and environmental benefits of vehicles that require less fuel and burn what they use more cleanly.

“History shows that one of the quickest ways to end a recession is to sell more automobiles,” said Representative Gary Peters of Michigan, whose district includes Chrysler LLC’s headquarters, several General Motors Corp, facilities and numerous suppliers.

Automakers also threw their support behind the plan, which covers vehicles sold by all manufacturers but may give a bigger boost overall to U.S. carmakers, two of which – Chrysler and GM – are operating under bankruptcy protection.

. June 11, 2009 at 5:39 pm

“No Cheating

Those wishing to buy an older junked car for $200 and trade it in for $4,500 towards a new car are going to be dissapointed. The bill requires you to own and operate the car for more than a year before trading it in and it has to be in drivable condition, meaning the clunker can’t be overly clunky.

No Old Cars

Many car enthusiasts fearful someone will trade in a rare classic will applaud the section limiting the cars to those produced in model year 1985 or after. Of course, this wasn’t done for the sake of car fans. They can’t easily determine the combined fuel economy of vehicles before the date because the EPA didn’t track this data.

To The Crusher!

The law is very explicit on this point: the car has to be crushed. No salvaging it. No retitling it. No shipping it off to another country. The car has to be crushed and the title has to be transferred. Anyone trying to pass the voucher off and then resell the car could be penalized $15,000 per violation. However, you can strip and sell any part of the car that isn’t the engine block.”

. June 19, 2009 at 5:03 pm

Canada’s cash-for-clunkers plan: Do nothing at all

Updated Fri. Jun. 19 2009 7:08 AM ET

Jeremy Cato, Autos.CTV.ca

MUNICH, GERMANY — There are good ways to do cash-for-clunkers programs, and there are bad ways, and then there is Canada’s way, which is to do essentially nothing at all.

Let’s start with the bad. Here in Germany, the federal government has introduced a rich, no-strings-attached clunkers program that is costing taxpayers a fortune and threatens to undermine any recovery in the auto sector next year.

Under Berlin’s rules, owners with cars at least nine years old get 2,500 euros (about $4,000) for turning in a wreck and buying a new car, regardless of its size or fuel efficiency. That cash comes on top of any sweetheart deal the buyer cuts with dealers and auto makers.

As you can imagine, it’s been a huge, huge success. New car sales in Germany are up 40 per cent from a year ago and sales haven’t been this good since 1991.

. June 19, 2009 at 5:05 pm

“British Columbia’s BC Scrap-it program (http://www.scrapit.ca/) takes an approach that gets it right on the environmental front — and the economic one.

Dennis Ragoza, CEO of the program, certainly agrees that the $300 incentive is a non-starter with the public; it’s just not enough.

He should know. BC Scrap-it administers the government’s $300 scheme and since it was introduced on January 30 of this year, only a handful of people have taken the federal money in B.C.

On the other hands, BC Scrap-it, a provincial program, has been overwhelmed with interest. Why? Simple. The BC program offers up to $2,250 for polluting clunkers that are crushed and taken off the road.

The key point is that the payouts are based on the size of the greenhouse gas benefit. That is, the worst polluters are worth the most to owners who scrap them.

If your old car, when scrapped, offers a fairly low greenhouse gas reduction, then you get $750 applied to the purchase of a new vehicle. Medium benefit, $1,250 and high greenhouse gas benefit, $2,250.

Ragoza argues that the Scrap-it program was designed first as an environmental program, but the economic stimulus is just as real. “

. June 22, 2009 at 12:44 pm

The 2012 Oil Crunch vs. Cash for Clunkers

Posted by Engineer-Poet on June 17, 2009 – 8:35am

World oil production is beset by declining fields and stagnant investment, and Saudi Arabia is predicting a new price spike even higher than the one in 2008. In the midst of this looming crisis, HR2751 is set to saddle the USA with a brand-new crop of gas-guzzling vehicles.

Via the UAE comes a warning from Saudi Arabia: crude oil prices are likely to spike above last year’s record high. “If others do not begin to invest similarly in new capacity expansion projects, we could see within two to three years another price spike similar to, or worse than, what we witnessed in 2008.”

This is no surprise to anyone who’s been following the peak oil news, and it seems very unlikely that anything can be done on the supply side. If oil production is to keep pace with the historically rising consumption curve, we’ll need 20-30 million barrels per day of new production by 2030 just to keep pace with depletion elsewhere. That’s several new Saudi Arabias.

Where would this capacity come from? Not Mexico; its fields are sliding fast (Cantarell at 30%/year) and Pemex has neither the capability to develop difficult new resources nor the legal ability to partner with private oil companies. Not Venezuela; Chavez steals anything that comes into his country. Not Canada; the tar sands are terribly expensive to develop and are unlikely to hit 3 million bbl/day. Not Russia, which is past peak and following the same route as the USA’s lower 48. Not Brazil; even if the 8 billion barrels in Tupi can be pumped at an initial 10%/year, that is only about 2 million bbl/day. And certainly not ANWR or the Bakken shale, which are good for perhaps 2 mmbbl/day total.

Milan June 30, 2009 at 3:46 pm

There are certainly a lot of people hoping to cash in on a government grant in exchange for an old car.

1,094 people have visited this page since it was created. 814 came from Google, 154 from Yahoo, and 26 from AOL. All told, it has represented more than 10% of my total traffic, since it went up.

Most were searching for terms like ‘government voucher for old cars,’ though a lot searched specifically for the $3500 figure.

923 visitors were in the US, 160 in Canada, and just 5 in the UK.

Of course, none of this means these grants would be a good policy to implement, or that they would make a difference in greenhouse gas emissions or oil dependence large enough to justify their cost to the taxpayer. It would be far more efficient to raise taxes on fuel and/or the efficiency standards for new vehicles. Of course, giving people thousands of dollars is a more appealing option for an ambitious politician.

Tristan July 1, 2009 at 12:58 pm

Taxing fuel (or carbon) directly is the only way to be fair to those drivers who do choose to drive in such a fashion that their car burns less or more fuel than the vehicle’s EPA rating.

. July 9, 2009 at 5:31 pm

Ottawa considers richer ‘cash for clunkers’ incentive
Last Updated: Thursday, July 9, 2009 | 2:05 PM ET
CBC News

Federal Environment Minister Jim Prentice said Thursday Ottawa is looking into whether to offer consumers more incentives to retire their old, polluting cars and buy new vehicles.

“We’re assessing it now. Certainly any changes we make would come into effect this fall,” he said in an interview with CBC Newsworld.

Last month, U.S. President Barack Obama signed his country’s billion-dollar “cash for clunkers” law. Several European countries are also offering consumers financial incentives to scrap old cars and buy new vehicles.

Prentice said an existing program announced last June has not succeeded in getting as many clunkers off the road as hoped.

“We had an objective of 50,000 vehicles per year,” he said. ” We’re currently on track to achieve about 30,000 — perhaps as much as 40,000 — vehicles.”

The program — touted as a way to reduce air pollution and greenhouse gas emissions — offers incentives such as discounts on public transit passes, bicycles, memberships in car-sharing programs or $300 cash. The retired vehicles are turned over to scrapyards to crush and recycle, according to provincial guidelines.

. July 15, 2009 at 5:45 pm

Buyers of electric cars to get $10K in Ontario
By Romina Maurino – THE CANADIAN PRESS

TORONTO — Ontario’s government will announce a plan Wednesday to offer purchasers of electric cars incentives of up to $10,000 in a bid to make the environmentally-friendly vehicles more accessible to the average consumer.

The plan is part of the province’s attempts to boost the struggling auto sector and position itself at the forefront of the emerging technology, sources told The Canadian Press.

. August 8, 2009 at 2:04 am

Car Scrap Plan Abuse

By Davi Ottenheimer on Security

The BBC reports on fraud in the German car scrap

According to police, the owners had already received the government subsidy under the scrappage scheme, but instead of being destroyed the cars ended up in the hands of criminal gangs who sold them on.

“This is not an isolated case and police say a number of factors are to blame.

Thanks to the global downturn the scrap metal market has crashed, so many scrapyard dealers are sitting on a mountain of old cars they need to get rid of.

There are lax controls and criminal gangs are becoming more savvy.”

The government now estimates around 10 percent of the plan, as many as 50,000 cars, have been diverted by criminals. It seems that it would not be terribly hard to track the scrapped automobiles but apparently no one noticed until a Hamburg port cargo check revealed 40 old cars headed to Africa.

. August 29, 2009 at 7:49 pm

The study finds that Canadian provinces that offer rebates have spent an average of $195 per tonne of carbon saved or, equivalently, $0.43 for every litre of gasoline that a vehicle consumes over its 15 year average life expectancy.

Chandra says that governments could garner greater environmental benefits by purchasing carbon offsets (currently priced between $3 and $40 per tonne on carbon markets) or investing in green jobs and technologies.

While hybrid rebates help governments to appear environmentally progressive, Chandra suggests that some programs may serve as de facto “bailouts” for the North American auto industry.

. November 8, 2009 at 9:59 pm

Cash for Clunkers brought us … more clunkers!

So how did Cash for Clunkers work out from an environmental standpoint? You don’t want to know.

The $3 billion federal program was kinda sorta supposed to send inefficient, high-polluting, belchy vehicles to an early grave. Instead it put a lot of new large, inefficient vehicles on the road, according to an AP investigation of new government records.

The most common deals swapped old Ford or Chevrolet pickup trucks for new pickups that got “only marginally better gas mileage,” the analysis found. Old Ford F-150 for new Ford F-150 was the most common exchange. Buyers were 17 times more likely to purchase an F-150 (rated at 16 miles per gallon) than a hybrid Toyota Prius.

At least 15 owners of large pickups cashed them in for new Hummer H3 SUVs that get only 16 mpg. Excuse me, but why did the government even send claims forms to Hummer dealerships? Government officials are “investigating” out how these deals squeaked through, the AP reports.

About 1 in 7 of all deals went for vehicles that got 20 mpg or worse. If you think about it, though, 20 mpg really isn’t such a bad rate … for 1979.

There were plenty of signals before the one-month summer program began that it was a poor method for cutting pollution (note our roundup of early warnings). There’s also a lively debate on whether it made sense as economic stimulus.

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