Right now the Senate is poised to vote on additional funding for the "cash for clunkers" program. For those not familiar with this program, a consumer would receive $4500 for trading their old car in for a newer model. The plan has actually proven to be successful, in the sense that the program has already run out of money.
Cash for clunkers has received some negative publicity recently, but I actually believe the original intent of the idea is something worth keeping. The main idea of this program is to encourage people to drive newer, fuel-efficient vehicles because they are better for the environment than older cars.
The issue that I have with the program right now is that there has been a seperate agency created to administer the program. Anytime the federal government creates a new entity its almost impossible to get rid of it. I think the program can keep its intent and save time and money if people received a tax credit instead. The advantage of this program is that the tax credit will be administered by the IRS, an entity already in existence.
Tax credits, breaks, or rebates should be the preferred way the government incentivizes a preferred behavior rather than paying a car dealerships directly.
The other advantage of a tax credit is that the consumer can actually benefit by getting money for their trade-in from the dealer and getting the tax credit from the government on top of that.
So far the cash for clunkers program has been credited with the recent increase in auto sales. Some critics point out that most of the new cars purchased are actually foreign cars. My belief is that any increase in auto sales at this time is a good thing. Even if Toyotas and Hondas are being purchased there still is an American car salesman making commission, an American car dealership owner making a profit, and an American factory worker who can keep their job. Just because Toyota and Honda have benefited from the program does not mean the program should end. Keep in mind prior to this program Toyota and Honda were the the top selling cars in the US and it should not be a shock that they are still the top selling cars in the US after the creation of this program.
It is important to keep in mind foreign automakers are not the only benefactors, Ford Motor Company actually did better this recent month because of the program. Isn't any increase in auto sales no matter how short a good thing for US automakers? My belief is that US automakers need any help that they can get.