What Happens to Clunkers Consumers Trade In?

What Happens to Clunkers Consumers Trade In?

The government estimates 240,000 vehicles have already sputtered off the roads and into dealers’ lots as part of the federal government’s cash-for-clunkers program, in which consumers receive a subsidy of up to $4,500 when they trade in their older, less efficient cars for new models. The House of Representatives has already moved to keep the program going by expanding its funding, and the Senate is considering a similar measure this week. But while the initiative has proved highly popular with consumers, critics are raising concerns about the economic and environmental hazards inherent in the process of ruining so many cars beyond repair.

In order to receive federal reimbursement for the subsidy consumers get for trading in their cars, dealers must first destroy the engine. One common method is to drain the car’s oil and flood the engine with sodium silicate, or liquid glass. Dealers then turn the car on and rev the engine to let the solution harden. In just a few minutes, the car becomes inoperable.

Once the engine is dead, recycling lots can take possession of the car. From that time, they have 180 days to sell the pieces of the car that retain some value. Even though the engine’s a lost cause, everything from the scrap metal to the hubcaps are available to buyers. When the resale period is up, any leftover parts must be destroyed and the government is notified that the car is gone for good.

No party involved thinks the process is perfect. Just a week into the program, the National Association of Auto Dealers lobbied successfully to tweak the rules. Dealers, who were originally forced to dismantle the cars before receiving the government’s check, can now hold onto cars until they get the money, so long as they ruin the car’s engine within seven days. The NADA says it’s happy with the Obama Administration’s response to its concerns and says the latest changes significantly reduce the risk to dealers, who aren’t saddled with a dead engine if a car is rejected for reimbursement.

The recyclers who process the cars aren’t so lucky, according to Michael Wilson, executive vice president for the Automotive Recyclers Association, a trade group that represents 4,500 recyclers across the country. Due to the way dealers must destroy each clunker’s engine, fewer parts are salvageable — which means less profit for the recyclers who process the automobiles. Although 60% of a car’s salvage value comes from the engine and drive train, Wilson said the original cash-for-clunkers plan — the formal name is the Car Allowance Rebates System — called for the obliteration of both. While the ARA and Congress hashed out a compromise that salvages each automobile’s drive train, ruining the engine still kills about 30% of a vehicle’s recycling value. For recyclers, who pay upwards of $700 to process each vehicle before they know the condition of the model they’re getting, the provision eliminates much of the upside. “It’s almost like mining for gold,” Wilson says. “There’s a lot of sifting, and maybe it’s worth it for the recycler, but maybe not.”

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