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Cash for Clunkers: Invitation to Fraud?

The Germans already have a program for taking gas guzzlers off the road and replacing them with shiny new cars, but there are some bumps in the road.

As soon as President Obama signed the new "Cash for Clunkers" measure into law last week, a number of phony Web sites popped up offering to take your "registration details." Not that you need to give registration details. "Some (sites) want a lot of personal information, and talk about consumers being able to pre-register," said Eric Bolton, a spokesman for the National Highway Traffic Safety Administration. "Consumers don't have to register for this program at all."

The program is a simple plan that has worked well so far in Europe, according to conventional wisdom: Trade in your old gas-guzzling wreck for junk, and the government will contribute up to $4,500 toward a new car. The idea is to stimulate sales for the struggling companies in Detroit and clean the air at the same time by pulling less efficient heaps off the road. But the scheme has a number of risks.

A similar plan has been wildly popular this year in Germany, where in January the government introduced a so-called Abwrackprämie, or scrapping bonus, toward new-car purchases. The bonuses ran to €2,500 each, and so many people got in line for the money that Berlin added €22.1 million to the program in April. German auto manufacture, of course, is central to German jobs, and in March as well as May the plan stimulated a 40 percent surge in new-car sales over the same months in 2008.

Good, right?

Yes, except for some unintended consequences. First, the obvious car to buy, when an owner turns in a clunker, is small and cheap. That means sales of Hyundais, Dacias, Skodas and European-model Fords have been better stimulated by the scrapping bonus in Germany than sales of Mercedes sedans or BMWs. By the end of March, only about 24 percent of the bonus money had gone toward German-made vehicles — above all Opels and VWs. In May the German share had risen to 40 percent, according to a report by the German Association of the Automotive Industry (the Verband der Automobilindustrie).

The other problem, though, is regulating what happens to old cars. These schemes are no good for the environment if the clunkers don't get junked. A newsmagazine called Monitor, a sort of German 60 Minutes, examined the fate last February of a decent but down-at-the-heels 1994 Mercedes turned in for the scrapping bonus. The avenues for a junk dealer to re-sell a car that wasn't, in fact, junk, were numerous and tempting.

"It's an invitation to fraud," said Michael Wacker, a burly auto-parts dealer who pointed to a halfway decent VW resting on a hydraulic lift in his yard. "That's only got 62,000 miles on it. Plenty of people would like to drive something like that."

The market for slightly used, slightly gas-guzzling cars in Poland and the Czech Republic, not to mention Africa or Russia, is a lucrative reason for some junk dealers not to scrap still-drivable cars. The Monitor journalists had no trouble finding people to export their Mercedes from Germany in spite of documents claiming it should have been scrapped locally; and of course it's just as easy to pollute the climate from Russia or Africa as from Germany or the United States.

That's why some environmentalists are skeptical about such quick-and-easy stimulus measures. Jürgen Resch, who heads a German environmental group called Deutsche Umwelthilfe, said he expected "hundreds of thousands" of scrapping-bonus cars to be exported. "They will go on damaging the environment with emissions," he said, and wind up disassembled in countries where the scrapping standards are "far lower than ours."

The problem in Germany isn't a lack of rules but cracks in the system — lax control over the "junking" paperwork, in this case, combined with natural market pressure to keep on using fairly decent used cars. Bolton at NHTSA couldn't tell me just how the U.S. measure would prevent the sudden bloom of, say, a south-of-the-border market for your still-drivable 1993 Cadillac Fleetwood.* Obama just signed the bill, and NHTSA has 30 days to hammer out the details. But the matter needs attention. The invitation to fraud under a cash-for-clunkers scheme is an engraved one, and it extends far beyond a few phony "registration" sites.

Contact Michael Scott Moore at

* This story originally referred to a Taurus wagon, which as one astute reader pointed out was not enough of a gas hog to qualify.