Summary
As the US government seeks creative ways to spur new car buying, the side effects to those that will ultimately administer the program are an after thought. Ultimately the consumer will pay for this program through taxes or by limiting repair options and forcing them into newer vehicles.
Analysis
The goal of saving the auto companies and the environment at the same time is one that most Americans should think of as a genius piece of legislation...or should they?
First lets consider the current state of automobile recycling- Autos are already the most recycled consumer product in the US. According to the American Iron and Steel Institute, in 2007 the latest year reported, autos were recycled at a rate equal to 110% (number recycled/number produced) while cans/bottles were 65% and appliances were recycled at a 90% rate. In fact we have been recycling more cars than we are making since 2001. So this is not about recycling more cars.
Perhaps the most glaring assumption is that those with 'clunkers' will happily take the new credit straight to the auto dealer and buy, or should we say finance, a new car. The actual number of people that choose to drive old gas guzzlers is limited. Having worked in the auto recycling industry my observation is that many of the people driving so called clunkers do so because that is what they can afford. $4500 off the price of new car is not near enough incentive to bring this economic class of people into the dealership.
Further how many of the cars traded in under this program would have entered the recycling stream on there own? How many car buyers would have bought cars anyway? Now we are paying for something the market would have efficiently handled anyway. How many people out there will buy a $300 clunker so they can trade it in under the program and collect $4500? Watch your local newspaper...the ads will be there.
So this glut of newly scrapped cars should be a boon for scrap metal and auto recyclers since they will be getting a fresh supply of autos. The actual incremental number of cars that enter the recycling stream and made available to scrap metal processors will be so small that many expect to see no change in the availability or price of scrap cars. We will not see lower scrap metal raw material prices due to this minimal increase in scrap cars.
The auto recycling companies, especially those in the 'pull-a-part' segment may see the number of cars they can offer to customers limited in the short term. Companies such as LKQ and Schnitzer will adjust inventories to reflect demand for parts from these cars and over time I do not think it will be major issue. Should this legislation be extended beyond its current 1 year time frame then it could become a significant problem.
I do see this as a major loss for the American consumer. Many people looking for used parts to fix the remaining cars may out of luck. This will make it increasingly difficult for owners of the remaining cars eligible for the program to find low cost, used replacement parts. An added burden to those trying to make do with what they have and not able to buy a new, cleaner car. Ultimately they may have no choice so some will call that a victory for the program.
If the program is fully utilized the American people will pay somewhere between $4.5 to 3.5 BILLION dollars for a program that will have very limited impact. Surely we could have put that money to better use with a broader impact than on those few who are able to take advantage of the program for its intended purpose.
