As of November 2009 Cash for Clunkers approved just under 700,000 vouchers to pay out to participants. This amount accumulates to a staggering $2.8 billion being paid out since the beginning of this program.
But what does this number mean to the consumer? This article briefly analyzes the individual person behind one of those 700,000 vouchers, what decisions did the person have to consider in order to partake in this program, and was it a success overall?
Let’s briefly go over the general concept of the CARS (car allowance rebate system) program. In order for the Cash for Clunkers to benefit the individual consumer directly, one must have had an old car to trade in for a new more fuel-efficient automobile. There were different rebate amounts offered, depending on the type of car that was traded in, and the type of car being purchased – ranging from $3500-$4500. The more fuel-efficient the new car was, the more money you would get towards purchasing it. Cash For Cars Sydney
So, let’s pretend you are a consumer, and you hear about this program. You happen to have a 1992 Ford Explorer sitting in your garage that you’ve been meaning to sell in your front yard. What do you do? Whether you are an accountant or not – you should go through the process of weighing your costs -you’re your costs. Why this program may sound very tempting and a good deal for all, it is important for you as a consumer to make sure it is a good choice for your lifestyle and budget. The first consideration you might think about is – do I need a new car? If the answer is yes, then you should think about what type of car. If you have a big family and need an SUV, than this program is not for you. However, if you need a car to commute to work, and a Toyota Corolla sounds like a good idea, you need to consider the costs you might incur if you participate in the program.
First, let’s consider the opportunity cost of participating in Cash for Clunkers. If you decide to trade in your car, what opportunity are you giving up? If you decide to trade in with the program, you lose the opportunity of selling that clunker yourself. If you could have received $4000 by selling your Explorer to a neighbor, and only receives $3500 from the program, your opportunity cost was high. Other costs you need to consider are fixed costs. Fixed costs can be those items such as car insurance, fuel, car maintenance, etc. – costs that would occur regardless of what type of car the consumer has. Though they are relatively fixed per vehicle, the amount may vary from one to another. For example, the cost of car insurance for the Ford explorer – though fixed from month to month – may be higher or lower than the monthly insurance cost of a new Toyota Corolla.