An Initial Look at the CARS Program

An Initial Look at the CARS Program

No sooner did the government publish the rules for the Car Allowance Rebate System (CARS) and the program is said to be out of money. Does this indicate success because folks are trading in gas guzzlers for fuel-efficient autos? Or is it poor planning, once more, on the part of congress?

CARS was scheduled to be in effect from July 1 through November 1 of 2009. But within a week of declaring how the rebates work, the $1 billion allocated from the stimulus package is far from enough. The House of Representatives, through a fast vote, has doubled the budget to $2 billion thus keeping the program alive. The original bill called for a $4 billion budget, but it did not pass; however, with possible amendments as next year’s models are introduced, the price tag could continue to climb higher.

If 250,000 cars are sold as anticipated in the initial bill, this will amount to only 2.5% of the total 10 million projected new car sales for the year – down from 16 million in 2007. So why rush to appropriate more? Is it to help dealers move excess inventory from their lots? Is it because the government has a vested interest in the auto business? Is it the administrations way of forcing the greening of America? You decide.

Here’s how the program works. To qualify for a rebate, the trade-in vehicle must be under 25 years old and get less than 18 MPG. The purchased car must show an improvement of more than 4 MPG and less than 10 over the trade-in to get $3,500 or over 10 MPG more for the top rebate of $4,500, with manufacturers often matching the government’s rebate. Other requirements include: a clear title, proof of insurance, registration in purchaser’s name, trade-in must be in drivable condition, and purchaser cannot have already participated in the CARS program.

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The cars taken in by the dealers are to be scrapped, probably before dealers receive their reimbursements from the government. This means dealers are, in effect, giving the government up to $4,500 in interest-free loans for each car sold. So it’s important that these struggling dealers get their money, fast. But how fast does the government move?

There have been complaints that this program is only for those who can afford to make payments on a new car. Now congress is considering making vouchers available for low income individuals to purchase fuel-efficient used cars. If these buyers can’t qualify for credit, we can expect an amendment to change the rules or possibly provide low-interest, unsecured government loans for them. One interesting side effect of CARS will be the virtual destruction of charitable vehicle donation programs through organizations such as The Salvation Army. Another unintended consequence will be the creation of a vast black market for reclaimed cars and parts. What else lurks in the shadows?

I’m one pre-boomer who is not in the market for a new car; however, the problems encountered in this relatively simple $1 billion program makes me worry about the capability of those in Washington to run a very complex health care program with an initial price tag in excess of $1 trillion. Doesn’t this make you a bit concerned, too?