Drawbacks

The CARS program sounds like a good idea but limitations in scope, demography, budget and availability will hinder any significant impact to both carmakers and consumers. Though a step in the correct direction to bolster auto sales and help some consumers to buy new cars, CARS is considerably self-limiting.

The program will cease when the $1 billion budget is hit or on November 1, 2009. While the program started July 1, the NHTSA has until July 24th to implement logistics, cramming CARS in to a window of about three months.

“Overall, the program itself is very restrictive which will limit success or limit the amount of benefit its going to give to new car sales,” says Jeff Schuster, executive director of forecasting at JD Power & Associates.

The limits placed on the clunker’s fuel efficiency (18 mpg or worse) seem quite arbitrary. As Business Week points out, the bill neglects car owners seeking to trade in an old car that gets 20 mpg, for example, for a new car that gets a much improved 35 mpg in addition to cutting an earlier measure that would’ve provided mass-transit vouchers to car owners who traded in a gas guzzler.

Likewise, the bill is being touted as a boon to the environment, but stipulations made on fuel efficiency heavily favor SUVs and trucks. While a passenger car must be traded in for new car that gets a 4 mpg or 10 mpg increase, a new SUV can get only 2 mpg more while a truck only needs a 1 mpg increase to meet criteria—a negligible difference.

“Its restrictive in many senses of the word: the current vehicle that you own as well as the restrictions on what you have to purchase and its limited to the new car market,” says Schuster. The more fuel-efficient car your credit counts towards must not exceed $45,000. Additionally, the credit cannot count towards a used, fuel-efficient vehicle.

Lastly, as Business Insider’s Jay Yarrow identifies, the severely narrow demographic the law appeals to is wildly self-limiting: Its difficult to imagine that consumers driving around in a vehicle valued at less than $4,500 are likely seeking to purchase a brand new car amidst the current economic stranglehold.

Reprieve

To the upside, it is indeed a step in the right direction. “I think that it could be a test to see how successful the program is—if we see sales benefit and we see what kind of vehicles that are coming off the road I think we could see revisions or extensions to the bill,” says Schuster.

And despite the fact that SUV and truck replacements need only be slightly more fuel efficient, the law is designed with the environment in mind. Plus, despite the fact that the demographic it appeals to is limited, the stipulation that the credit can be combined with other State and Federal incentives, as well as dealership and manufacturer incentives, could considerably reduce the cost of a new vehicle to near $0.

If anything, CARS is creating a national buzz around new car sales and providing a much needed boost to a down-in-the-dumps industry.

What are your thoughts on the CARS program?