Summary of the Car Allowance Rebate System (CARS)

The Car Allowance Rebate System (CARS), colloquially known as "cash for clunkers," was a $3 billion federal program initiated in 2009 to encourage the purchase of fuel-efficient vehicles by providing rebates for trading in less efficient ones. The program was intended to stimulate auto sales and promote environmental sustainability.

Eligibility and Program Details:

  • Eligible vehicles for trade-in had to be less than 25 years old with a fuel economy of 18 mpg or less.
  • New vehicles purchased had to meet certain fuel efficiency standards and could not exceed a suggested retail price of $45,000.
  • Rebates ranged from $3,500 to $4,500, depending on the fuel economy difference between the trade-in and new vehicle.
  • Traded-in vehicles were required to be scrapped and their engines disabled to prevent resale.

Program Impact:

Economic Effects:

  • The program led to an increase in auto sales, with an estimated 370,000 additional vehicles purchased during the two months it ran.
  • However, some studies suggest that the sales surge was partially offset by a decline in sales in subsequent months.
  • The program cost taxpayers approximately $2,000 per vehicle trade, with total costs outweighing benefits by $1.4 billion.

Environmental Effects:

  • CARS improved the average fuel economy of vehicles purchased during its operation.
  • The program is estimated to have prevented 4.4 million metric tons of carbon dioxide equivalent emissions, representing approximately 0.4% of annual U.S. emissions from light-duty vehicles.

Vehicle Safety Effects:

  • Newer vehicles purchased under the program had significantly improved safety features compared to the older vehicles they replaced.
  • The program encouraged the replacement of vehicles lacking essential safety features with those equipped with electronic stability control, side curtain airbags, and tire pressure monitoring systems.

Controversies and Challenges:

  • Some expensive and collectible vehicles were mistakenly included in the program.
  • Dealers initially resisted passing on the scrap value of trade-in vehicles to buyers, despite legal requirements to do so.
  • The program diverted potential charitable donations from charities dependent on vehicle donations.
  • The quick exhaustion of program funds due to high demand led to challenges for dealers in processing reimbursements.