US economy suffers with Cash for Clunkers program

The new Cash for Clunkers program is raising some eyebrows as consumers cruise to dealerships to trade in vehicles and benefit from government subsidies of up to $4500. Intended to remove inefficient gas guzzlers from the road, the Obama-developed program has been a relative success. The problem, however, is foreign car companies like Toyota and Honda are cashing in on US tax-funded dollars.

From the start, the intentions of the bill, otherwise known as Car Allowance Rebate System or CARS, were promising. Essentially, the plan was to reduce emissions and dependencies on oil and stimulate auto sales in an unfriendly new car market.

The program has already seen more than 184,304 clunkers traded in for new cars. In fact, the Senate has seen it as such a success that an additional $2 billion was thrown into the mix earlier today to keep the momentum going of inefficient guzzlers coming in and fuel efficient models going out.

The issue for the US economy arises when foreign car makers ship in models to take advantage of the Cash for Clunkers program. Essentially, United States tax dollars and borrowed dollars are going straight into the pockets of automakers like Toyota, Honda, and Hyundai, which aren't headquartered in the US like GM and Ford.

Don't get me wrong, the additional funding is certainly going to benefit the United States economy by increasing spending and Gross Domestic Product: the more money circulating in the private sector, the more growth in the economy, and because some cars are still being manufactured in the US, GDP will continue to grow in the US.

The outcome, however, is that more than half the cars that have been purchased through the program were manufactured by foreign companies and most likely imported. According to the National Highway Transportation Safety Administration, foreign car makers controlled over 55% of the business generated from the program.

Toyota is especially pleased with the program as its Toyota Prius sold more than 25,000 units in July. Sources say the Cash for Clunkers has helped propel the Prius to the best selling vehicle in Japan and put Prius plants at near capacity.

Although the program is getting fuel efficient cars out on the road, it could hurt the US economy in the long run as it continues to borrow large amounts from foreign investors and gives the money right back to foreign companies through rebates.

If the money was intended to circulate in the US and get the Big 3 back on their feet, it's not necessarily doing its job.