Cash for Clunkers (formally known as the Car Allowance Rebate System (CARS)) is meant to encourage consumers to trade in older, lesss fuel-efficient vehicles for newer more fuel-efficient vehicles by providing a credit of either $3,500 or $4,500

According to Edmunds.com, he Cash for Clunkers program will probably cost the American taxpayer about $20,000 per vehicle sold.  According to Edmunds, about 250,000 vehicles will have taken advantage of this (initial) program, but 200,000 vehicles is the number which would have been sold without the program.  So the increase in sales is only about 50,000 vehicles.  In addition, the extra 50,000 people who purchased at this time would probably have purchased in the near future, so all that may have been done is to move up those sales, which will result in decreased sales later on this year.  Read the story.

Economists also don't seem to like the program.  It seems odd that perfectly good used vehicles are being destroyed.  Only those who can qualify for loans (or who have the cash) can take advantage of these programs.  Those under economic stress, clearly including those who are middle-middle class and below, cannot use the program, and the used cars which would have been available to them are being destroyed.  Read more.  And even more.

Environmentalists are even somewhat aghast at this program.  Even if you buy into man-caused global warming, the pollution savings from Cash for Clunkers is minimal.  Read more.

Also note that 4 of the 5 top models sold are made by foreign auto makers.

This is a prime example of the broken windows parable in economics.  For a good explanation of this (and everyone should know this parable), see the (click here ->) Wiki article.

Cash for Clunkers car must be driven 8,000,000 miles for break-even

Here are the numbers - Environmentalists say that the cost of carbon in the atmosphere is about $43/ton ($12/ton of CO2).  1 gallon of benzene (better than gas) has about 2.4 kg of carbon.  The average mileage for the vehicles traded in for Cash for Clunkers went from 15.8 mpg to 25.4 mpg.  The first article above quotes Edmunds with a cost of $20,000 per vehicle (under the first $1 billion of the program).

So, how many miles must a car drive before the program makes economic/environmental sense?

        15.8                average mpg for trade-ins               
        25.4                average mpg for new cars               
        0.0239            gallons saved per mile               (called the Harmonic difference )     
                   
        2.4                  kg carbon/gallon                        (From any chemistry book)    
        0.05741055    kg carbon saved per mile               
        1000               kg /ton carbon                            (Metric tons)          
        $43                 external cost per ton                   (From wiki)           
        $0.00247        external cost difference per mile (60 grams of carbon saved per mile, at a cost of $43/ton)
        $20,000          Cost per excess trade in             (From Edmunds)      
        8,101,582.69  Miles car needs to drive before break even               



Somehow, this program still got a majority in both the house and senate. There does not seem to be any arguments for why this makes sense.  The Senate vote was 60-37. Both Georgia Senators (Isakson and Chambliss) voted nay.