What Is the Cash for Clunkers Program?


Quick Answer

The Car Allowance Rebate System, commonly known as "Cash for Clunkers," was a federal program instituted in 2009 designed to increase automobile sales in response to the financial crisis of 2008 that threatened the American automobile industry. The program provided consumers up to $4,500 to purchase new cars and trade in older, less fuel-efficient cars.

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Full Answer

The U.S. Congress initially provided $1 billion in funding for the Cash for Clunkers program at its inception in 2009. The program ran out of money in less than a month due to high consumer demand, prompting the Congress to allot an additional $2 billion to the program. Consumers quickly exhausted the funding by August 2009.

The program enabled automobile dealers to reduce high inventories by 35 percent. It also led to a reduction in carbon dioxide emissions as consumers purchased more fuel-efficient vehicles.

Critics of the program claimed that the program merely accelerated automobile sales that consumers were already planning to purchase instead of generating new sales. Though automobile sales temporarily increased during the months the program was in effect, automobile sales for the year remained stagnant compared to past years, critics asserted. Additionally, critics diminished the beneficial environmental impacts of the program, contending that more cost effective ways of accomplishing the same goal could have been employed.

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