What do YOU think of Cash for Clunkers 2.0?
It seems that the government is going to increase CARS (Cash for Clunkers) allocation from $1 billion to $3 billion. With the speed that people have gone through the first billion, the government believes that passing the additional $2 billion will have the same affect on auto sales. As someone that works at a new car dealer, I can say that that probably will not be the case.
Cash for Clunkers is a great idea. I love that the government has made an effort to stimulate the auto industry. Most of the people taking advantage of Cash for Clunkers 1. Have good credit, 2. JUMPED at the chance to get rid of their old gas guzzlers that had little to no trade-in value.
Why Credit Matters:
People with good credit can buy whatever they want to buy, when they want to buy it. They have been waiting for this kind of deal. One of the reasons that many of them have good credit is they do not buy a new car every year or two. Without this program, they probably would have been driving their old jalopy for a long time, and probably would not have bought a car for an even longer time. They have done most of the research themselves, and have know what documents they need to provide in order to get the CARS money.
Many of the people that I see trying to take advantage of the program (with bad credit) do not know a whole lot about the program. A lot of them ask if the program works on used car purchases too. Often times, there is an insurance lapse. I have even had people ask me if they can use a car they bought two months ago. Anyone who has done any research on the program knows that none of those scenarios will work for the Cash for Clunkers program.
In addition to qualifying for the program, a prospective car buyer needs to qualify for the auto loan, if they are not buying cash.
This is a two part problem.
1. You have to have better credit to finance brand new vehicles these days.
New vehicles generally cost more money than used. New vehicle purchases have higher initial depreciation that used vehicle purchases. New vehicles have less margin in them to absorb sub-prime lender acquisition fees.
2. Most of the inexpensive models that qualify have already been picked over.
At higher interest rates, that same $300-$400 per month buys the bad credit car buyer less vehicle than it buys the good credit car buyer. It is just math.
With the economy coming out of a recession, new car makers have lowered their production volume considerably. There are way less new cars on dealer lots. It will take several months for dealers to be able to fill all their inventories with inexpensive vehicles that qualify as Cash for Clunkers purchases.
Since most people that qualified for the Cash for Clunkers program hurried to buy their vehicle, I have come to the conclusion that there just are not enough people out there that meet all the government requirements and can afford the more expensive new vehicles that are left over in dealer inventories.
What can the government do to make sure that all $3 Billion is spent on new vehicle purchases?
Here are my ideas:
- Allow vehicles that are older than 2000 (any model year with a 1 in front of it) to qualify if they have a V-6. There are a lot of 1997 Taurus owners out there who would love to dump their clunker.
- Allow people who have owned the vehicle for only 6 months to qualify, if they can prove insurance for the 6 months.
- Allow people to qualify if they car they are trading in is in someone else’s name, as long as they provide proof of insurance in their name (on that vehicle) for the full year.
- Allow ALL vehicles built before 1995 to qualify. We do not need any 1994 vehicles on the road. They are emissions nightmares, and most of the safe ones had big engines and already qualified for the Cash for Clunkers program.
Doing one or more of the above suggestions would make paying taxes a lot more palatable for the people who have not been able to use the Cash for Clunkers program. A lot of people cannot qualify for new cars in the $30,000 range and most of the new cars under $15,000 are simply gone. If we relax some of the qualification requirements of Cash for Clunkers, then more qualified buyers will be able to take advantage of the CARS money.
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Tags: auto, auto industry, auto sales, car, cars, Cash for Clunkers, Credit, gas, IRS