Cash for Clunkers Program: A Poor Investment for Individual Americans

The government's newest solution to our economic problems may be helpful to the auto industry but it may also be a detriment to individual Americans. The recently ended Cash for Clunkers Program convinced thousands of Americans that they should buy a new car when a new car is the last thing that people should be spending their money on during these tough economic times. New cars are a luxury and if you don't have extra money, you should not be spending money on luxuries.

The Cash for Clunkers program was popular for two reasons. First it fed the average American's belief that we all "deserve" a new car. Next, it fed our ego being able to be seen in a new car. Finally according to the US Department of Transportation, the government took 2.88 billion dollars from taxpayers and gave it to people to convince them that they could afford a new car. Nearly 700,000 vehicles have been traded in during this two month long program. Most of these cars were probably paid off and the owners have now tied themselves into a new monthly car payment. With the average car payment in America being reported by Nocarcredit.com at $400.00 a month on a five year loan, most families today probably have better uses for this money. In this economy individuals don't need more debt. What people really need is ways to make what little money they have go further.

Carefully selected used cars are a much better option for anybody who is experiencing financial difficulties. In the year 2004 I bought a 1991 Honda Accord for $1100 from a private party out of the newspaper. When I bought this car it had 110,000 miles on it. It had four doors, air conditioning, power windows and power locks. This car was not beautiful and it was not a status symbol but it was very functional. Once I got over my false pride and ego and realized that this car performed all the functions it needed to, I found that it was the best car I ever bought. During the time I owned this car I spent another $700.00 fixing the breaks and performing general maintenance like wiper blades, tires and oil changes. I drove this vehicle for three years until it had 200,000 miles on it. At the end of three years I had this car towed to the junkyard and received $50.00 for it. It seems like a waste to get nothing in return for my investment but compared to the depreciation of a new car, I got a lot more.

Advertisers will tell you that the new car they are advertising has great resale value, but according ByingAdvice.com most new cars still depreciate in value over 30% in the first two years. This depreciation continues at 10% a year for year three and four then greatly diminishes making used cars a much better investment. Using this percentage If I bought a new car for $30,000 and had it for three years I could expect to sell it for around $18,000 losing $12,000 in depreciation. My used car went from $1100.00 to $50.00 in the same three years losing only $1050.00. Obviously I received nothing in resale for my used car but it was still the best investment I have ever made in a vehicle. By carefully selecting a used car I spent only $50.00 a month for reliable transportation. This included the purchase and all repairs for the three years I owned this used car.

If we as Americans want to survive this down economy, we have to stop thinking that we deserve a new car or that we look better in a new car and realize that cars are poor investments and they are simply tools for transportation. The Cash for Clunkers program may have given the troubled automotive industry a temporary boost, but it also put over a half million Americans deeper in debt.

Sources:

"Most Car Buyers Unaware of Vehicle Depreciation Rate"
Byingadvice.com

U.S. Department of Transportation CARS
www.cars.gov

Admin, "Auto Payments: Why Never Having One Can Make You a Millionaire"
www.nocarcredit.com