The Car Allowance Rebate System (CARS) – better known as “Cash for Clunkers” – was a federal program enacted in the summer of 2009. Under CARS, consumers were encouraged to trade in older, less efficient vehicles for newer, more environmentally-friendly vehicles. This was done by offering a tax credit that went towards the purchase of a new car.
The purpose of CARS was two-fold. First, the government felt that implementing this program would be a step towards decreasing overall carbon emissions. Second, the government wanted CARS to be a type of stimulus program, as the tax incentives would encourage people to go out and purchase new cars. This, consequently, was supposed to give the economy a boost.
There are, however, a couple criticisms of these goals. For one, there are questions as to whether the program will really result in an improvement (decrease) in carbon emissions. When people buy new cars, they tend to drive more, so the difference in fuel-efficiency between the two cars is negated. Furthermore, the process of destroying the “clunkers” is not particularly ‘'eco-friendly.’' Next, it is doubtful that the CARS program actually boosted the economy. The increase in automobile production and sales likely came at the expense of other industries, and it is questionable as to whether destroying physical capital (the “clunkers”) can actually increase the nation’s wealth.
Economists are similarly split on the results of CARS. The positives are that automobile-sales improved, and that some of the more fuel-inefficient cars were taken off the road. On the other hand, it is still uncertain whether the incremental improvement in fuel-efficiency was worth the program’s three billion dollar price-tag.