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moneysense.ca, 6/07/09
Cash-for-Clunkers Program Coming to Canada?
The Ottawa Citizen recently reported that the Federal Government is considering a cash-for-clunkers program:
Environment Minister Jim Prentice said Saturday he’s reviewing whether Canada should follow the United States and several European countries in offering consumers a substantial financial incentive to scrap their clunkers and buy new vehicles.
Prentice said he’s met with a number of auto manufacturers over the past few months to discuss the prospect of giving Canadians $3,500 to trade in their older, polluting vehicles.
As someone who drives a 1992 Honda Accord I’m not sure I like this idea very much despite the fact that it would probably financially benefit me. I mean, who wouldn’t like a Government program that pays up to $3,500 for their $1,000 (if that) car that is on its last set of wheels? But let’s set aside personal considerations for a moment and look at the downside: a big fat subsidy to buy private cars will simply pull in future demand to the present and mostly benefit people who plan to (and can afford to) purchase a new car in the near future whether or not they get a subsidy. New demand — i.e. people buying a new car solely to take advantage of the subsidy — will most likely be very small. Would a massive new spending program that benefits owners of clunkers at a time of soaring fiscal deficits qualify as wise expenditure of public money?
moneysense.ca, 6/07/09
I wonder if this plan can be combined with the other $2500 rebate if you buy a hybrid? I think the other rebate is from the Department of Natural Resources or something like that, so I suspect that those 2 departments don’t even talk about stuff like that… So, $6K total would be a pretty sweet discount. Still, I think I still have a solid 3 to 5 more years left in my Canadian-built Civic! Yay! *waving flag*
The other problem is that I have no idea what vehicle I would want to buy next. It’s sort of the same reason why I don’t have a tattoo. I don’t have a tattoo because I can’t decide what I would want to be branded with for life…
When you consider the billions of dollars in potential costs from the future impacts of climate change, then yes, it is definitely a wise expenditure of public money. Transportation accounts for about third of greenhouse gas emissions (and more than that in some provinces), and improving the average fuel economy of the on-the-road fleet by replacing older cars with more fuel-efficient ones would make a difference.
The only real flaw in their thinking is that older cars are by definition fuel-inefficient. Your 92 Civic is a lot more efficient than a 2008 Hummer, for example.
Perhaps a better system is the one that Ontario operated for a while in the 1990s, a feebate program in which an incrementing tax was levied on fuel-inefficient vehicles (the less efficient, the higher the tax), and the revenue generated by that was used to fund rebates on more efficient vehicles.
Phil: are you thinking of the cancelled federal EcoAuto rebates, or one of the provincial ones? Either way, none of the ones I know of has a $2500 increment level…
Brad: Ontario still has the tax for fuel conservation feebate, but it’s pretty watered down (the federal feebate was a bigger version of the Ontario program) — the most a normal person would pay for a guzzler is about $1000 (though a lambourgini has a $4400 tax — whoopdidoo for a $300k car), and the rebates are only $100. Plus SUVs get a separate scale for no reason I can think of.
The US program limits the fuel consumption of the trade-in and the new model, so you couldn’t trade a Civic in at all, let alone for a hummer… BC’s program is a little better, in that the rebate is scaled to the reduction in CO2 between the old car and the new car.
Nonetheless, I have to agree with CC: it’s not the best idea. As a stimulus it just steals demand from the future purchases, and an ecoauto rebate-type system would work better to encourage buyers to choose more fuel efficient cars.
Most economic analysis I’ve seen on this says it’s a terrible waste of public resources, and it doesn’t even do that much to help out auto manufacturers, as CC has noted.
Older models are generally more fuel inefficient than newer cars, but in terms of pollutants emitted, there was a huge advance in emission standards starting in ~1995 that cut down on NO2, etc. exponentially. There wouldn’t be that much impact on the environment by taking a bunch of vehicles manufactured in 1997 off the road. You’d also have to look at emissions over the entire life cycle of a car – i.e. the manufacturing process needs to be taken into account. A 1992 Accord driven for 17 years will be a whole lot greener than a 2009 model driven for 12 years before it’s scrapped.
Seems there’s 2 interests in play: the environment, and the automakers.
Environment:
I believe in rewarding purchases of greener cars, and penalizing purchases of less-green cars. This seems better done through rebates at the time of purchase of new cars.
Automakers:
The proposed clash-for-clunkers program doesn’t do a lot for automakers. I would have thought that $10 billion for Ontario automakers would be enough of a burden on taxpayers. And, it just doesn’t make intuitive economic sense to pay someone $3500 for a car that’s worth $1000.
Overall, this seems like a band-aid solution with only short-range vision, addressing symptoms instead of root causes – we need better plans with long-range vision if we aim to restore the automakers and the environment.
More proof that the environmental crisis is a cash grab that benefits big business. Now we can fill the world with old cars and buy poor quality new ones so you can trade in on a new one every five years. Hey, driving older cars is a form of recycling! Want to save the earth? Put in better public transit and ride the bus! The three R’s are Reduce, Reuse, and Recycle with heavy emphasis on REDUCE. Reduce your use of fossil fuels, quit buying junk that goes in the landfill and turn off the power when you’re not using it.
What annoys me the most about this idea is that it just seems to fuel the “disposable-everything” mentality. Since when is a car only supposed to last 10 years?
If they want to spend some tax-payer money to save the automakers, I propose that they give a $2500 rebate to the manufacturer of every car over 12 years old that is still running and insured in Canada. The companies that built quality cars get some much needed cash to see them through till the economy improves. The companies that sold us junk get nothing, which is what they deserve.
@Phil: As Holy Potato mentioned, the ecoRebate program was scrapped last year (but the eco tax on gas guzzlers remains).
@brad: If improving emissions standard is the goal then I would agree that providing a rebate for purchase of a greener car such as a hybrid would be the right incentive. i.e. Getting someone to buy a Prius instead of a Corolla by providing a rebate is defensible. But that’s not what cash-for-clunkers is aiming it. It is simply providing a rebate for buying a Corolla which would have been purchased anyway.
@HolyPotato: I’m not familiar with the specifics of the US program but I’d be even more negative if my old Accord wouldn’t qualify for a clunker program
Speaking of which, I found this “Reality Check” column on cash-for-clunkers on the CBC website:
Cash for clunkers: Seeking an exit strategy
CC: The American program has a CAP on how inefficient a car must be to qualify for the program – at 18 MPG, so if a similar program was implemented here we’d be out of luck (I’ve got a 13 year old Subaru Legacy in the garage). Also, the ratings are based on the ‘published’ mileage and not actual mileage (i.e. if your clunker is getting worse mileage than it’s supposed to, you’re screwed).
I always thought that rather than giving money to GM and Chrysler, an incentive program to buy their vehicles could have been used in its stead. I think these two companies have shown that they are not competitive (and have already been unsuccessfully ‘restructuring’ for the past 10 yrs), so why not subsidize their products directly (much like the government does with Bombardier). This is all assuming we want the government meddling in the first place.
Amen Chris!
Chris nailed this one
In BC, a scrap it program has existed for many years where you can choose between cash for a new car or 15 months of free transit passes or a combo of $1100 cash towards a new bike with 3 months of unlimited transit. The are also other ridesharing / coop car network rebate options.
Full options here:
http://www.scrapit.ca/incentivechoices.htm
I know several people who have done this towards the bike route to buy a brand new bike.
You still drive your ’92 Honda … WOW! Don’t you live in the Ottawa (salt belt) area?! That’s amazing … I had to scrap my ’95 Civic when it literally started losing rusty pieces from the underside while driving – my yougest kid thought that was funny while my oldest was embarrassed to drive in it.
In any case, I would like to propose something similar to Chris’ suggestion. How about being able to write off any repairs up to $1000 annually for any car over 8 years old. There will be an incentive to buy quality and hence drive producers to create longer-lasting cars (maybe) and it will promote the idea of keeping your car as long as you can and in relatively decent shape.
This is a joke. They should be rewarding people for hanging on to their cars and penalizing those who buy a new car every 5 years or less – a $10,000 early exit fee, for example.
It takes way more pollution, energy and non-renewable resources to build a new car than it does to keep an old (even slightly less fuel efficient) one on the road.
Don’t kid yourselves, this has nothing to do with the environment.
If the government was serious about making an impact on the environment they could start by banning unsolicited mail. Think about all that stuff delivered to every mailbox, everyday across the country (globe??) plus all the extra stuff in our bills. It all goes straight to the garbage pail or recycle bin without even so much as a glance. Think about all the energy, pollution, trees and chemicals that go into this stuff.
I visit my local politicians every week and remind them about this, you should too!
TBS
While it makes intuitive sense that “it takes more pollution, energy, and non-renewable resources to build a new car than it does to keep an old one on the road,” research shows this to be wrong.
Check out the pie charts from this lifecycle analysis of the environmental impacts of cars:
http://www.iere.org/ILEA/lcas/macleanlave1998.html
The bottom line is that far more energy is consumed (and energy-related pollutants emitted) during automobile use than manufacture. However, about the same amount of toxics are released during manufacture than use. Note that many toxics produced at automobile manufacturing and parts facilities can be controlled so they aren’t actually released to the environment.
I agree that it should not be done, but I’m currently driving an old v6 Tuarus and while I intended to drive it into the ground… and then hopefully replace it with an electric car after the bugs are worked out… considering car prices and gas prices, if there were also a big cash for clunkers rebate I might instead buy an efficient small v4 instead.
The problem with gov’t incentives is that the manufacture raises the vehicle cost in the same amount. I recall when the Smart car could be purchased for shy of $14k in Canada. Once the $2000 rebate was offered the vehicle price increased to $16k.
If the government wishes to provide incentive for fuel costs they should peg a value for fuel and make the tax rate variable. $2/ltr of gas (with a built in tax of $1.05) would provide direct incentive for people to invest in alternative fuel cars at the same time as boosting revenue for public transit and road construction.
I think its clear this isn’t actually an ‘environmental’ motivated decision.
As was alluded to in the grocery bags discussion, just bump taxes. The best way to discourage environmentally damaging consumer behaviour is to charge them money for it. Increase taxes on gasoline, and MANDATE the proceeds be directed towards environmental protection, research into development of zero-emission vehicles etc.
@Baker’s son – Careful about demonizing individuals who get new cars every few years. First of all, getting rid of your car doesn’t mean it’s scrapped. Someone else could buy a four year old car and keep it for an additional 15 years. Second, there are legitimate reasons for people to get newer cars.
I’m thinking primarily of safety features. Up until a very short time ago, important safety features like electronic stability control and traction control were only available on high end luxury models. Airbags were once the same way. Speaking as a parent, I place a high value on ensuring that if my little girl was ever in the car during a serious collision, she would be protected as much as is humanly possible.
It’s great that certain manufacturers produce cars that last a long time, but hanging onto a car for its entire lifespan isn’t feasible for everyone.
Some unintended consequences of the cash for clunkers bill in the UK: “According to Auto Trader UK, two of the first new vehicles purchased under the UK’s new scrapping scheme were Nissan GT-Rs.”
http://www.autoblog.com/2009/05/19/nissan-gt-rs-being-purchased-under-cash-for-clunkers-provisions/
I’ve been delaying my purchase of a new Ford Fusion, hoping that the government will give me some money to get rid of my 1990 Honda Accord (only 295k km).
If the government won’t subsidize it though, I’ll definitely consider other options (new or used Infiniti?).
I wouldn’t be surprised at all – governments around the world are trying to kick start the automotive industry.
Chris hit it on the head:
QUOTE:
What annoys me the most about this idea is that it just seems to fuel the “disposable-everything” mentality. Since when is a car only supposed to last 10 years?
If they want to spend some tax-payer money to save the automakers, I propose that they give a $2500 rebate to the manufacturer of every car over 12 years old that is still running and insured in Canada. The companies that built quality cars get some much needed cash to see them through till the economy improves. The companies that sold us junk get nothing, which is what they deserve.
If the whole point is to help the environment, wouldn’t the incentive for scrapping an older car be free public transit for a year or two? For $2,000, you could get 2 bus passes for a year, or one pass for two years and a bicycle here in Winnipeg.
“The only real flaw in their thinking is that older cars are by definition fuel-inefficient. Your 92 Civic is a lot more efficient than a 2008 Hummer, for example.”
Fuel effeciency is not the concern, emissions are. A 2008 Hummer H2 releases less harmful emissions than a 1992 Civic even though it uses more fuel. The reason 1995 is the cutoff year is because a new emission system was mandated by law in every vehicle sold in North America.
@sid – Yes, that would make more sense. However, they want people to actually take advantage of this program. I’m out in the suburbs (GTA), and you couldn’t PAY me to take public transit. Too unreliable, too slow, and too inflexible. Public transit is for dense cities or commuting to work. Not for getting kids to daycare, shopping, visiting friends, etc (at least not in the suburbs).
[...] Canadian Capitalist has a great discussion going; Cash-for-Clunkers Program coming to Canada. [...]
[...] Canadian Capitalist asks is Cash For Clunkers Coming to Canada? Is it a wise thing for the government to delve [...]
I too am in a position to take advantage of this rebate if the government does offer it. However I do think it is a giant waste of government money at a time when the fiscal deficit is already large enough.
As Canadian Capitalist points out about all it is doing is transferring future demand to current demand. In my opinion this will not make the car companies any better off. The only result is that Canadians will pay higher taxes in the future to offset the increased budget deficit.
My 2 cents
Rather than spending all that money on subsidies and giving them to car owners, the government should take that money and SERIOUSLY IMPROVE public transit. If they extended the skytain/subways, the people would actually use them because they could get to and from work faster and cheaper, and it is better for the environment.
Everyone who thinks this would put a huge increase in the deficit is missing the big picture. Unlike in the US, most of the rebate that is given in this would be redeemed in sales taxes. For example, a $4500 rebate would get back $3250 of it in HST in the maritime provinces, on the purchase of a $25000 car. Thus it is only effectively $1250 of an actual rebate, not $4500.
It is a good idea. It gets older vehicles off the road, provides a boost to auto sector, and saves people money on gas when in the future it goes to $2 a liter (and it will, without government intervention).
Fuel taxes are a bad idea. They won’t stop pollution, they will just bankrupt people that HAVE to drive. Not everyone lives in a huge metro area with a great mass transit system. People in Toronto and Winnipeg will never understand the lives of everyone else in Canada.
We must have this program for clunkers. After buying new vehicle Govt gets most of the rebate back in taxes any way and keeps the oil leaking and unsafe vehicles off the road. This program elligibility should include any new vehicle purchased between Jan 1 to Dec 31, 2009. The old vehicle should be atleaset 12 years old. Everyone wins. Autosector keeps people employed and reduces EI burden and keeps mony flow in the system. Recession? What recession. We can reduce the financial impact only if our politicians can get their gears in motion.
Perhaps the incentive could be no tax on a vehicle no older than 3 years and the first year of insurance free when trading in an 10 yr or older vehicle.
[...] 14th, 2009 · No Comments The Federal Government has decided against implementing a cash-for-clunkers program in Canada because car manufacturers were not willing to settle for anything that offered less than a $3,000 [...]
If our government was interested in reducing carbon emissions, it should focus on getting old vehicles off the road and not offering up incentives with public money to assist people who can afford to purchase new vehicles. I would like to see fewer vehicles on the road, not newer. They should be increasing the incentive from $300 to $3000 and stop subsidizing auto manufacturers who are offering up ridiculous discounts for new vehicle purchases.