Cash for Clunkers: Great Idea, but Who Benefits?

Since the Cash for Clunkers bill passed the Senate on Thursday, it should go into effect as expected by August. If the $106 billion program meets government expectations, it will help move approximately 500,000 new cars and trucks nationwide.

Whoever did the math factored a lot of optimism into this equation. For one, the program only appeals to people whose trade-in vehicle is valued at less than the maximum $4,500 credit.

Here's how it works. Say you have a 1990 Chevy Cavalier that gets 15 mpg. It's certainly no chick-magnet, but it's served you well over the years. Right now, your local dealer is offering you $500 on a trade-in. Under the program, if you buy a new car that gets 4 mpg more than your Cavalier, you'll get a $3,500 voucher. If the new car gets 10 mpg more, you'll get the full $4,500 credit. If you're trading in an SUV, minivan or light truck, the fuel efficiency ratio from old to new is even less at 2 and 4 mpg respectively.

Here are the requirements:

The trade-in vehicle must be a 1984 or newer and get less than 18 mpg.

You must have owned and operated the car for at least a year.

Any pre-2002 work truck will a receive a $3,500 voucher for a new upgrade.

Vehicle purchased must have an MSRP of $45,000 or less.

After you drive away in your new car, your old Cavalier will find its way to the crusher, then likely on an ocean freighter headed toward China, where it will be melted down and made into new car parts, tools, what-have-you. The online car-buyer guide, Edmunds.com, reckons that the program will yield 250,000 sales, or about half as many as the government projects, which is still a pretty good chunk of consumers no matter how you shake it.

The typical car buyer who will take advantage of the program is the guy or gal who buys his or her cars new, maintains them well, drives them for the full life of the vehicle, and is now ready to consider trading in on their next new car; in other words, the loyal original owner of that 1990 Cavalier. The incentive will convince some from this category to think about trading in a few years early, even though the car they're driving right now runs fine, and that's the target audience for the program.

There's no way to gauge how big a dent this program will put into reducing carbon emissions, but any change is significant. The main benefit will be to car manufacturers and workers bordering unemployment.

The best benefit of all is perhaps that the program may inspire people to get out there in the showrooms looking new cars whether they qualify or not, and could stimulate residual sales and education about the need for fuel efficiency.