“Obviously a lot of them were junk and deserved to be called clunkers,” says Powell, who owns the store his father began in 1933. But a sizable chunk — Ford Explorers and other four-wheel-drivers — were “decent cars,” he says. “I think we’re paying for it now. Prices for used cars are up, and the cheaper stuff was higher now than it was before.”
In the program’s aftermath, slashed supplies drove used-car prices up.
Indeed, they still cost more today than in the year before the program, but it’s hard to pin that on Cash for Clunkers alone. As many as 13 million new cars weren’t bought between 2008 and 2010, a supply disruption that dwarfs Clunkers. It’s a point Powell recognizes. Other trends — higher delinquency rates for Clunkers-issued loans and a marked drop in other new-car incentives — have run their course with little effect today, and the program’s eventual lease returns and trade-ins won’t put much of a dent in used-car prices. Perhaps the ultimate result of Cash for Clunkers was to put nearly 700,000 Americans into more fuel-efficient, safer vehicles more effectively than a regular incentive program.
In summer 2009, it took just 29 days for Cash for Clunkers to burn through nearly all of Congress’ $3 billion allocation. The program sent used Explorers, Ford F-150 pickup trucks, Jeep Grand Cherokee SUVs and other low-mpg vehicles to wrecking yards in exchange for $3,500 or $4,500 vouchers toward more fuel-efficient replacements: brand-new Toyota Corollas, Honda Civics, Ford Focuses and the like. Two years later, consider four principal effects:
1. Some buyers made purchases they couldn’t afford. Eighty percent of Cash for Clunkers buyers wouldn’t have otherwise bought a car over that span, reported a study last year by Maritz Research. Not surprisingly, another study by CNW Market Research found repossession rates among low-credit Cash-for-Clunkers buyers more than double the industry average. Buyer’s remorse among Clunkers purchases was five times higher, CNW said. It’s one reason James Merriman, general manager of Montgomery Motors in Dallas’s suburbs, calls the Cash for Clunkers “a complete fiasco.”
“The people who really had these clunkers, most of them weren’t qualified to buy a new vehicle,” says Merriman, who has worked at the used-car dealership for 40 years. “They were qualified to buy a new[er] used vehicle.”
How did banks respond? It’s hard to say. Any effects on auto-loan credit have since subsided, in part because car sales loosen credit. Peter Turek, automotive vice president at TransUnion, says that until Cash for Clunkers, recession-wracked banks were issuing car loans only to high-credit buyers, but loans became easier to get in the months after the program. TransUnion reports that in the two years since Cash for Clunkers, delinquencies have declined to historic lows.
“Lenders had money to lend, and people started feeling a little bit better about themselves, so we did have a slight uptick in car sales as well as auto loans,” Turek says. “It may be coincidental that it started happening right around Cash for Clunkers, but that’s kind of what we see.”
What it means to you: A $4,500 trade-in voucher sounded great at the time, but it didn’t take many months for the car payments to add up. Like any incentives program, Cash for Clunkers saddled some car shoppers with payments they defaulted on. Discounts are good, but make sure you can afford what you buy no matter the size of the incentive.