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Clunkers deals bilked consumers out of scrap value

The summer of 2009 will, for me, be the Summer of Clunkers. The federal government’s “cash for clunkers” program, which allowed consumers to trade in an old gas-guzzling car for a somewhat less gas-guzzling replacement, had its problems. The paperwork required for dealers to receive reimbursements from the government was confusing, and deals were completed much more quickly than expected.

Almost no one seemed to understand exactly what the rules were. And buried in the 136 pages of those rules was a vague statement that entitled many consumers to more money than they got. (See p. 93 here). The Boston Globe quoted a spokesperson from the National Highway Traffic Safety Administration, which ran the cash for clunkers program, as stating that after dealers took $50 to cover administrative costs, that the remainder of a vehicle’s scrap value was “negotiable between the consumer and the dealer.”

The scrap value is much less than the typical trade-in value of a vehicle. In exchange for the government subsidy of $3,500 or $4,500, consumers waived the routine trade-in process, but residual scrap value, depending on the age and condition of the vehicle could be several hundred dollars. Dealers were required to disclose the scrap value to consumers before completion of the deal.

Some dealers handed the residual scrap value over as a matter of course, but many did not. And deals were already complicated with quite a bit of confusion from consumers and dealers about how the trades were supposed to work. Public Citizen requested additional information about the program through a Freedom of Information Act request, but information about the scrap value was not disclosed, so we can’t make a guess at the total scrap value.

Lena Pons is a transportation policy analyst for Public Citizen.

Flickr photo by billaday.