I give you car, YOU give ME cash

So soon after the cashh-for-clunkers program by the government has began, it is already facing a big roadblock: the possibility of an exhausted funding, initally expected to last for months, until around November.  You don’t know whether to celebrate that as a stimulant, it is successful by boosting car sales or to be worried that the $1bn allocated by Congress might just be all gone by now and more funding might be needed to prevent public backlash (one of the sources being considered is the TARP).

The basics of this cash-for-clunkers program:

  • Rebate of between $3,500 and $4,500 for trade-in of old cars for new higher fuel-economy cars
  • $3,500 goes to “a buyer who picked a car with a mileage improvement of more than four miles per gallon but less than 10 were eligible for $3,500; a buyer whose new vehicle was rated 10 miles per gallon or better than the old one was eligible for $4,500.” (NYT)
  • Old in this case is defined as being a car existing for less than 25 years, as well as have a fuel economy that is 18 miles a gallon or less

From the WSJ report:

Originally, auto makers, dealers and industry forecasters had been conservative in their estimates about the ability of the clunker program to jump-start U.S. sales, in part because it is limited to cars of a certain age and fuel-efficiency. Industry executives expected it to result in about 250,000 vehicle sales.

But the incentives proved a powerful lure to consumers — even those who were unable to take advantage of them.

Know more about the issue HERE or NYT’s story HERE.

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