5 Good Reasons to Keep Your "Clunker"

By Xin Lu on 7 August 2009 (Updated 25 August 2009) 21 comments

The United States recently approved another $2 billion in funding for the cash for clunkers program, after the program burned through $1 billion in less than a week. Although the program offers enticing rebates of $3500 to $4500 towards the purchase of a new car, here are five good reasons why keeping your perfectly functional "clunker" could be more sensible and environmentally friendly.

1. Car insurance

Usually it costs more to insure a new car than it costs to insure an old car. If your car insurance goes up by several hundred dollars a year, then it may be worthwhile to just keep your functional car for a few more years and save the extra insurance money you would have paid towards a new car.

2. New debt

If your old car is already paid off and you know that you would need a loan to get a new car, then it may not be prudent to take the plunge right now. The economy has not completely recovered and having as little debt as possible would make your financial situation more secure.

3. Wasted parts

The most wasteful part about this program is that your old car's engine would be completely destroyed and the car's parts cannot be resold. This is not exactly great for the environment and it destroys usable automotive parts that could have been reused by others.

4. Value added

Since the government will be destroying a large amount of perfectly usable cars, the used car market may heat up due to the decrease of supply. It is possible that your used car may end up being worth more than the voucher value after the massacre ends, even if its trade in value is slightly less than the voucher amount right now.

5. More gas

Past data from the Energy Information Administration shows that as cars became more fuel efficient, Americans drove more. This is because that psychologically people know that each mile costs less in gas. It is possible that a person who gets a more fuel efficient car will actually use more gas per year because he or she changes driving behavior.

For those who have an eligible clunker to trade in, there are extremely good deals on new cars. Considering how fast the first $1 billion was spent, I am sure that the new allotment of $2 billion would not last long. Before you send your usable car to its grave through this program, you should definitely consider how much you are really saving after insurance costs and other various fees. If your current car still has plenty of life in it, then it is probably more economical to use it until it dies and save your money in assets that appreciate.

 

This post was included in in the Economy and Your Finances Carnival.

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Guest's picture
Guest

"Ditto" on the point that this program creates waste.
The majority of "clunkers" traded in have many years left in them, and are rendered undriveable, and if there's time/resources, "parted-out". Otherwise, they're flattened @ the scrap yard. Does anyone else have a problem with scrapping thousands of decent used cars??!!!!

Guest's picture
Guest

no one seemed to mind when they did it to a bunch of electric vehicles. many of the cars through this new program need to be off the roads (Unlike the electric ones)

Guest's picture
Maria

Given the gas-guzzling nature of the cars one may trade in under the program, I'm hard pressed to consider this "scrapping thousands of decent used cars."

We're scrapping thousands of SUVs, which means we're making the roads safer, our skies cleaner, and our nation more secure. There are cars in the mix, too, but really - 18 mpg? That *is* a clunker.

That said, I agree with the author. This should be a purchase made with full deliberation, sweetened by the program - not made because of the program.

Guest's picture
Guest

Okay as i do agree that some of these cars need to be taken off the road but there are quite a few of them that are still good and not hurting the environment i live in fl and have seen a lot of the ones traded in and some of them are better than the ones on the new car lot also if the env is so important than why don't the gov step in and stop people from taking the factory exhaust off new vehicles and putting on ones that hove no convertors or anything to help the env these are now cars that are worse than old ones as far as im concerned and these program is going to cause a lot of people to get in dept that cant really afford to but the gov makes it sound so good THERE NOT HELPING THE ENVIRONMENT THEY ARE HELP THE CAR DEALERS THAT'S ALL then why not sell the used parts for people that cant afford new cars to fix theirs and make them safer and more environmentally safe. NOT EVERYONE CAN AFFORD A 200 TO 500 PAYMENT NOT TO MENTION HOW MUCH MORE INSURANCE IS ON A NEW CAR COMPARED TO THERE OLD CAR THIS SOME FOLKS DON'T THINK OF TILL THE BILL COMES IN THE MAIL THEN THEY END UP LOSING EVERYTHING AND HAVE NO CAR!

Guest's picture
Jim

I agree that for most people its probably more economical to keep driving a used car rather than rush in and buy a new one.

But I don't see the problem with scrapping old cars. Americans scrap millions of cars a year. This program is simply scraping some low mpg cars faster than they would be otherwise.

I think the argument behind item #5 is pretty weak. That link is to an op-ed opinion editorial. They are citing raw figures that show that Americans drive more today than decades ago. Theres no evidence of any cause-effect between higher MPG ratings and driving more. American households drive more mainly because more people work and we have more cars. Look at it this way, if your current car gets 20 mpg and drive 15k miles a year and you go buy a hybrid prius that gets 50mpg will you then drive 37,500 miles a year and spend an extra 1-2 hours a day on the road simply cause you can do so for the same gas cost? Obviously not.

Guest's picture

Completely agree! Everyone thinks that older cars are money drains because of repairs, but compare the cost of keeping an old car, complete with all the repair costs, with the cost of buying a new vehicle, and the old car will win every time.

Compare the cost of a $400/mo payment ($4800) on a new car with the $2000-3000/yr in repair costs on an old car, then factor in all the other items listed in the post. If you can mentally assimilate the idea that $2-3000/yr will be the primary cost of keeping your old car, you can keep driving it for years.

A lot of the problem is a psychological one, people don't think a car is worth keeping once it hits 10 years or 100,000 miles. In truth with proper maintenance and regular repairs, they can easily last twice that long. Ask any mechanic! (But find a good one so he can keep your clunker running.)

Guest's picture
kyle5434

In terms of making our skies cleaner, not so much.

An AP story yesterday estimated that the cumulative effect of the Cash for Clunkers program on CO2 emissions is about the same as Americans reducing their average driving by one hour per YEAR.

Guest's picture
Rachel

I agree with all these suggestions. Why get a 3500 rebate if you can save 10,000 by driving a newer used car rather than a brand new one? Doesn't make any sense to me.

Guest's picture
Guest

Not following how this is making our nation more secure. Anyway, they are still making SUV's, so for every one traded in with this program if those people turned around and bought one with say a rating of 21 instead of 18, not much will change on our roads. People who have the SUV type vehicles do not tend to downsize. We have a Saturn that gets 34 mpg, but we also have a truck that my husband needs for work, and to haul our boat, we have a GMC truck that gets 21 mpg.

Guest's picture
megan

I'm not junking my 1990 Honda Wagon with 20-25mpg, over 50kmiles left on the engine that I only use for needed trips and mix with public buses. ALL PAID FOR and cost me $500 bucks to boot and then invested another thou to replace upgrade the starter/alternator electrics, muffler and some brakes. My insurance is less than $200 for 6mos and registration/plates $25. Spend less than $40 mos on gas.

Until the first fully electric car comes out $15-20k and can go over 300mi per charge, getting a hybrid now I'm not saving the environment nor helping with the carbon foot print issue but just putting myself into debt and beholden to a bank for a loan and helping the car companies. At that I'd rather get a used electric car in another 5-6yrs to be even more frugal/cheap.

Guest's picture
Diana

How does scrapping an SUV make our "nation more secure?"

Guest's picture
Torrey

Many people hear about incentives such as these and justify adding new debt (even people that are paying off debt. I actually had to recently talk someone out of getting involved with this.

Guest's picture
wildgift

I read something on the James Hong blog that went something like this: as we climb out of this recession, China is going to return to a higher rate of growth. That means fuel prices will rise, and it will be driven by China, not the US. This will feel, to us, like gas prices are too high. (To Chinese, it won't feel so bad, because their incomes will be rising faster than ours, due to growth.)

So, destroying some SUVs may turn out to be a good decision, because it'll free up money for something besides fuel. Foreign growth will hurt less.

The whole issue of carbon emissions is just a way to tap into some "end of the world" sentiment. While I share the sentiment, driving a more efficient car isn't going to fix anything. We need to explore more radical ideas like commuting by bus or train, bicycle, or working only 4 days a week.

I see most of the benefits of this subsidy being the immediate jolt to the economy, to slow the growing unemployment. Secondarily, it might help our economy in the future, because it reduces our fuel expenses.

Guest's picture
Paul

While the clunker's engine must be destroyed and the drive train cannot be resold, all other parts of the car are allowed to be resold.

See for yourself at the official website:

http://www.cars.gov/faq#category-14

Guest's picture
Kelja

The cash for clunkers will bring about a slew of unintended consequences. Unintended but not unforseeable if you spent more than 10 minutes thinking and analyzing. I thought Obama and his administrators (please include the czars and congress) were/are supposed to be smart. Excuse me?

1. The program is artificially producing car sales but these sales are robbing future sales. Owners of clunkers were going to buy newer cars but down the road.

2. This program is adding additional burdens to the lower income groups. Working older cars (clunkers) are purchased by students and those not able to afford newer. Price of used cars just moved up.

3. Scrappers - those who make a living removing and selling parts from scraped cars will have less cars and less income.

4. Mechanics - less clunkers mean less work.

As with any 'free money' it comes with a cost. Buyers are less likely to get deals on new cars because of the artificial rush created by the program. Final new car prices will be higher as a result. (Basic economics which few understand.)

Money for the program has to come from somewhere. Borrowed from your kids' and grandkids futures. But who cares?

Economic benefits will be small and shortlived. Environmental benefit = probably nil after everything said and done. You probably don't realize this but you can use your clunker benefit towards a HUMMER!

Corruption and waste will be epidemic - as always with government programs. Right now, there are reports of car dealers selling the clunkers out the back door. Many car dealers backdated sales in the beginning to award the benefit to buyers.

Tell me I'm wrong.

Guest's picture
Justin

Great article. I found it very interesting and informative.

Guest's picture
steveiin w ma

An added perspective from the owner of a 92 Honda Accord that will in all likelihood last another 10 years:

Most of the people turning in vehicles under this program are buying vehicles that get improved mpg by about 10 mpgs.

From my perspective, this is adding a nice pulse of newer, higher-mpg cars into the sales stream that will be sold as used cars in 5 to 10 years, just in time for my next car purchase!

I do agree that it's wasteful to pour "liquid glass" into an engine to disable it; they should be melted down and recycled, not turned into unusable contaminated scrap. By draining the oil out of the vehicle and then running it for 10 minutes they would just as effectively disable the engine, but allow it to be melted down and recycled that way.

do not expect perfection in human affairs, they will always be ludicrous on some level even if and when on other levels they be inspired

Guest's picture
Guest

The program worked great for me. I had an older Dodge Ram 1500 truck that threw a rod. Apparently this happens a lot because it was difficult to find a used engine and once found was expensive. A new engine with a guarantee cost only $500 more. Even with the bad rod, the truck still ran and therefore qualified for the klunker program. Used vehicles have become so popular that I was unable to find a decent used vehicle at a good price, so for me the program was a winner.

Guest's picture
Wirehead

My clunker doesn't qualify. It was passed down to my wife & I by her dad... and he was smart enough to not get a car bigger than he needed.

I just bike all journeys with less than 50 pounds of cargo shorter than 5 miles. I worked it out and I can pretty much own any car but a Hummer and still burn less gas than I would were I to be driving a Prius on all of those trips.

The weight loss and sexy muscles aren't bad either.

Guest's picture
Guest

First they help people get into homes that they can't afford with bad loans that we are paying for now. Now they want people to get into cars they probably wont be able to afford in about a year....mark my words....we will be bailing out all of these cash for clunkers dummies in about a year!

Billy King
MO

Guest's picture

When you are finally ready to give up your clunker, please consider donating it to charity. You'll get a tax deduction and the charity will get the proceeds from its sale.