Obama's "Car Allowance Rebate System," known for its more popular name, Cash for Clunkers, ended Monday, August 24th at 8 P.M. EST time. According to a press release from the United States Department of Transportation, as of Thursday, August 20, there have been 457,000 dealer transactions which equals to $1.9 billion in rebates. Cash for Clunkers has "provided rebates of up to $4,500 when people turned in their clunkers for fuel-efficient vehicles. Most consumers have turned in trucks and SUV’s in exchange for passenger cars, with an improved gas mileage of about 60 percent." The Cash for Clunkers program undoubtedly created jobs, put people back to work, and kept the automobile industry alive. It has also reduced harmful emissions from clunkers into our air which helps our environment. Unfortunately, this pretty picture can be destroyed by taking a look at the most important group of businesses in America that drive our economy: small businesses.
Making up about a third of car dealerships across America, independent car dealerships are not affiliated with a franchise and were directly affected by the Cash for Clunkers program. During the recession, these dealerships have struggled due to little credit available as well as the lack of consumers who are looking to buy a car. Cash for Clunkers only made the situations of independent car dealerships worse. Take, for example, Chase Motors in Virginia. Sales are down thirty percent due to Cash for Clunkers and have to face the possibility of going out of business every day. This is the same story with independent business owners around the country.
Many people traded in their clunkers for the government rebate instead of receiving the thousand dollars or so for trading it in at a used car dealership. As a result of this, used car dealerships have less cars and therefore less business. Many of these struggling dealerships cannot find means to keep their doors open and are forced to close. The dealerships that are fortunate enough to stay open are struggling from the lack of cars on their lot. Since the supply of used cars has dwindled significantly, the prices on the cars available are marked higher than usual to cover costs to stay open. As a result, the consumers who are looking to purchase a cheap, used car are unable to because of the high prices.
Falling to Pieces
Not only are used dealerships and independent dealerships losing money, small business owners who deal with car parts are losing money as well. Cars which were sold from these dealerships to junkyards or had the car stripped and pieces sold away went towards the Cash for Clunkers program. In addition to losing available cars for parts, small businesses dealing with auto repair have fewer cheap parts available. This will eventually lead to cutting back the numbers of cars they can work on in the future, and potentially causing their doors to close.
So far, I have only mentioned small businesses which have been hurt by Cash for Clunkers that are in the auto industry. But what about other small businesses? What about transportation providers, such as limo services, taxicabs, or towing businesses who all need a way of transportation for their business? Or moving services, at-home repairs, lawn/ground maintenance, home improvement? Or for the entrepreneur, independent contractors who have to travel to clients? All of these small businesses require a vehicle of some sort for their small business to stay in business. Most of these businesses are unable to purchase an affordable vehicle within their limited funds since Cash for Clunkers drove up the price of used vehicles. These business owners have to sacrifice their vehicle, find another form of transportation, or close their doors.
The Bottom Line: Cash for Clunkers devastated small businesses. It has taken business away from small businesses when they are already struggling in this recession. The program increased the cost of the clunkers which were left on the market, therefore turning the used car market upside down, and taking the ones which are valuable to used car dealerships off the market. The Cash for Clunkers program had the intentions of being a good idea for Americans, but it ended up hurting the driving force of the economy. The Obama administration continues leaving small businesses asking, "what about us?"