Is Cash for Clunkers a Waste of Money?

Six of the top ten selling cars are manufactured by foreign automakers.

ByABC News
August 3, 2009, 5:08 PM

Aug. 4, 2009— -- The government's Cash for Clunkers program has been a big hit with consumers who have jumped at the ability to get up to $4,500 of a new-car purchase, helping to clear cars off deal lots.

But as the Senate now considers adding another $2 billion to the initial $1 billion for the program, some are questioning the benefits of this program for the larger economy.

Sure, Cash for Clunkers has helped the automakers, but what about helping to stimulate the nation's economy and end the recession?

"This proves one thing: If you hand out money on the street corner, people will take it," said James L. Gattuso, a senior fellow in regulatory policy at the Heritage Foundation, a conservative think tank.

The top 10 selling cars so far through the program, according to the Department of Transportation, are: the Ford Focus FWD, Toyota Corolla, Honda Civic, Toyota Prius, Toyota Camry, Ford Escape FWD, Hyundai Elantra, Dodge Caliber, Honda Fit and last the Chevrolet Cobalt.

Gattuso warned that while people might be buying cars the gains from their purchases won't overcome the lost economic activity from using the government dollars for more productive programs.

Click here to see if your car is eligible under the program.

"The money has to be taxed or borrowed. It doesn't come from thin air," Gattuso said. "You aren't going to fix the economy by the government being the consumer and paying for consumption directly.

"Is the government going to be the consumer of last report?" Gattuso added. "I don't think that's a viable economic plan."

Supporters, however, say the program is just the jump-start the economy needs and that the purchase of a car ripples throughout the economy, helping many sectors from part suppliers to steelmakers.

Ford Monday reported its first U.S. sales increase in nearly two years, largely thanks to the Cash for Clunkers program, officially known as Car Allowance Rebate System, or CARS.

On 'Good Morning America" today financial correspondent, Bianna Golodryga said she contacted four dealers; one in Los Angeles, Houston, Ohio and New Jersey, and that each said sales had increased 10 percent to 15 percent since January.

"They attribute one-third of that to the Cash for Clunkers program. it does seem to be working," Golodryga said.