Cash for Clunkers is a Massive Success

You know that something works well when it's success creates new problems. Cash for Clunkers, the government's new economic stimulus program, is a roaring success. In fact, it's so much of a success that it may end months early based on the $1 billion cap that the government has placed on the program.

Here are the basics. If you have a car that is less than 25 years old, gets 18 mpg or less, and you have owned and had it insured for at least 12 months, then you can trade that "clunker" in towards the purchase of a NEW car. The government will give the dealer $4,500 to go towards the purchase of your new car. The dealer must then destroy your new car. They have to kill your engine so that a low MPG car will be taken off the streets. The program ends on 10-31-09, or whenever the $1 billion cap is reached.

Now, let's dig a little deeper.

Since the program provides only (why in the hell am I typing only) $1 billion, that means that roughly 222,222 cars will be sold using this program. That is $1 billion divided by $4500 (credit received). Estimates are that 100k cars have been purchased within this system within the first 3 days. Pay attention now, it's time to use your high school math. At the current pace, the program will hardly make it to next week. But here is where things get really scary. The dealerships must file the car deals with the government in order to get reimbursed the $4500 that they are fronting on the car deal. And since the program is progressing so rapidly, the program may end prior to the dealerships getting reimbursed. Oh, and it's first come first serve.

Pete the Planner (yes, I went 3rd person on you) has always maintained that you should buy a used car based on its true value vs depreciation. However, this new program easily makes some new cars a better value than used cars. I would strongly encourage anyone one is in the market for a car that meets the Cash for Clunkers criteria, to act quickly. And by quickly, I mean finish reading this, and start doing your research online right now.

Congrats to the government for getting one right.