Cash for Clunkers Redux: Cash for Appliances
By Stew
I personally believe that Cash for Clunkers was a mistake . . . you might disagree and you are welcome to your opinion – it’s a free country! (at the moment) If you do happen to believe that incentivizing consumer deficit spending through the use of government debt is a good idea, you will be happy to know that the next big thing is on the way this fall: Cash for Refrigerators. The government has set aside about $300 million for states to use to give out rebates to buyers of energy-efficient appliances like freezers, refrigerators, furnaces and central air conditioners.
The details of the program are still taking shape, but the hope is that the program will jumpstart the sale of energy efficient appliances. Sales for household appliances are at their lowest level ever and there seems to be no signs of recovery. The stock prices for appliance companies like General Electric, Electrolux and Whirlpool have seen a small jump as news of the program has started to trickle out, however, I believe it is unlikely that there will be any sustained growth in this sector. (FYI: I am not an investment advisor and anyone who would make a a stock purchase because of something I write on this blog needs their head examined.)
Here are some of the details that I have uncovered in my research:
- States are responsible for deciding how to specifically spend the money.
- The amount of funding is roughly equal to $1 per person, so more populous states will get more funding.
- Refunds will range from $50 per appliance up to $200 per appliance.
- Most sources estimate that the rebates will begin to become available in late October or November.
- You can get more information from the Department of Energy website.
If you are already considering the purchase of an energy efficient appliance in the near future, you might want to wait until the details of the plan become available for your state in October or November.
So what I do I really think about this program? Well, I do not want to upset anyone who reads this blog, but here are a few questions/statements that I think are relevant:
- This is money that the government does not have, but it will have to take from us (or our children) at a later date. It must be repayed with interest.
- What happens when the $300 million runs out? Appliance sales will probably drop even further than they have over the last year.
- What happens when people who have a perfectly good refrigerator, but decide to go out and put a new fridge on the credit card because of a government rebate? Is the addition of more debt to their household a good idea right now?
- Remember that there are administrative costs to any program like this. How much money is the government spending in order to send all of us $300 million that belongs to us in the first place?
- When will our government give us incentives to save money?
The Smiths have an older washing machine and could save up to $80 in yearly energy costs by purchasing a new Energy Star model. So they go to Sears and find a new washer for around $700. The state rebate on this machine is $100, so they finance the rest with an in-store credit card at 10% APR. The Smiths will take three years to pay off the remaining balance. The total cost of the new machine for that family will be approximately $650. Over the three years, they will save about $80 in energy costs. So they spend $650 to save $240. If the machine lasts eight years, they will have broken even.
But that is not the whole story.
Our government is now another $100 in the red and it cost them another five bucks (estimated) to process the paperwork and reimburse the retail outlet. This money adds to our debt and the interest rate on our national debt is around 5%. Eventually, Congress will have to raise taxes on the Smiths in order to finance the $105 and since our government never pays down principle, the Smith’s, their children, their children’s children and on into perpetuity will have to pay a extra $5.25 in taxes every year. Of course, this does not take into account the inevitable rise in inflation due to the devaluation of the dollar.
Now I am not an economist any more than I am an investment advisor. I am just trying to do the math. If you understand this scenario in a different way, feel free to nicely explain where I went wrong! And if you can get a new appliance for $50 or $100 or $200 less than the asking price, I do not fault you for taking advantage, but make sure you understand what you are doing.
Photo by Ingorr
August 26th, 2009 at 9:10 am
You made some valid points questioning Cash for Appliances, but personally, I am very excited about the new program, partly becus I’m an environmentalist. both this and the Cash for Clunkers program did, after all, have two goals. This program will go far in accelerating the transition from energy guzzling home appliances to more energy efficient ones. (You didn’t factor in the cost savings over time that these new appliances will deliver to homeowners, BTW.)
In addition, I doubt that anyone who has a newer working washing machine in decent shape is going to go out and replace it with a $800 model simply to save $100. As for choosing to finance the purchase with a credit card, well, that’s always a danger and not advisable for many families who should simply delay the purchase until they’ve saved up for it rather than risk putting themselves in long-term debt should they become unable to pay the credit card balance in full.
August 26th, 2009 at 10:18 am
I think you nailed it on the finances analysis. The environment is a priority for me, and I know that some of the greener markets need some jump-starting. But the appliances and clunkers being replaced are going to the landfills most of the time. That doesn’t seem so green to me. Not to mention, a lot of resources are needed to make new products, also not so earth friendly.
August 26th, 2009 at 10:27 am
This is already in the works through tax rebates. My Stove/Oven recently died and thanks to my Emergency Fund I went to the store the next day to pick up a new one. I found the exact one I wanted for $550 but the sales guy kept pushing the Energy Star ones, saying I would get a tax rebate of up to $200. The cheapest in that category — $950! I still would over spend by $200 just to get a rebate. No thank you, I got the original one that met all my needs perfectly.
August 26th, 2009 at 10:49 am
“In addition, I doubt that anyone who has a newer working washing machine in decent shape is going to go out and replace it with a $800 model simply to save $100.”
Really? Would you also doubt that people would buy 3 times the size of a home they actually need or set out to just because a bank said they could afford it?
“As for choosing to finance the purchase with a credit card, well, that’s always a danger and not advisable for many families who should simply delay the purchase until they’ve saved up for it rather than risk putting themselves in long-term debt should they become unable to pay the credit card balance in full.”
But the program is only good for X months?
August 26th, 2009 at 11:21 am
While I support helping the environment, the better way is to have it be cost effective without a rebate or government support.
The other danger is they physicology of waiting for a government program/rebate. Lets say I would like a new refrigerator, but right now there is no program. Because of talk like this I am going to wait, which is just moving demand. Once the program is over, then we have low demand again.
I also agree with that is it wrong to trash perfectly working cars or appliances. Many people can only afford used appliances ( even if they are not as energy efficient).
August 26th, 2009 at 11:27 am
Great post, thanks for the highlighting the costs.
August 26th, 2009 at 1:37 pm
Amen, amen, and AMEN. Thank you for articulating MY thoughts so perfectly. :P
August 26th, 2009 at 4:53 pm
At the very least, this “Cash for Appliances” program will be reducing the carbon footprint left behind from these old, out-dated appliances. Personally, I think the program is a great stimulus idea, and I can’t wait until it officially goes underway, so that I too can trade in my clunker appliances!
August 26th, 2009 at 5:55 pm
The government does not want us to save money. They want us all in debt,IMHO because they can quantify debt on a report.
I am also with some of the others posters that new for the sake of new is a terrible waste of resources.
August 26th, 2009 at 6:56 pm
I love the environment but this makes me cringe. I remember a point in time when we all lived by a motto of “If you don’t have it, don’t spend it”. In reality if the government needs to spend money they will, but it’d be nice if they stopped finding ways to spend without evaluating both the long and short term effects.
August 26th, 2009 at 6:57 pm
“While I support helping the environment, the better way is to have it be cost effective without a rebate or government support.”
What is your solution for this? Many technologies require large production/distribution/sales volumes before they can get to be cost effective. In many cases, this will never happen without subsidies of some kind. Some day, we will NEED these technologies, and without subsidization of some kind we’ll be in real trouble when the day comes that we need them but they have not yet been developed…
“When will our government give us incentives to save money?”
Have you ever heard of a 401k, 403b, IRA, Roth, etc.? Are these not incentives to save money?
August 26th, 2009 at 8:22 pm
I think this is all rubbish. If we can’t afford any new appliances then we shouldn’t be getting new ones no matter what effects the older working models are having on the environment.
I’m so happy that God created this beautiful earth but there are a lot more things hurting the environment than some outdated appliances…give me a break.
No disrespect intended towards anyone here but wake up…that’s why it’s called an incentive (should be called seductive) because otherwise most of us wouldn’t even think about getting it/them.
Lots of bad is going to come from all these government incentives. No offense Mr. President.
August 26th, 2009 at 9:26 pm
My refrigerator will be fifteen years old next month and my washer and dryer are each around seven or eight years old. I’m going to wait and see exactly how the program works, but I’ve got almost two grand saved toward replacement units, so I may just end up taking advantage of this program. To some extent, I’m of the mindset that if it works, you should just hang on to it, but when an appliance like a refrigerator or washer fails, you generally need to replace it immediately instead of waiting for a good deal to come around. Instead of sending them to the landfill, I’m sure I can get rid of my older models on Craigslist, so they won’t end up trashed before their time.
August 26th, 2009 at 9:39 pm
my first response on reading this post was that somehow my calendar was wrong and it was really april first instead of late august. my second response is not a godly one so we will leave it alone. my third response is major heartbreak at the legacy we are leaving our kids as far as the tax burden they will be under. as a self-employed individual, i already feel taxes are higher than i want.
government should keep their big fat noses out of most things. period. they should scale back on what they are doing, regroup and do a few things well instead of a lot of things crappily. and they should stop trying to make the world perfect. period. ain’t ever gonna be perfect and legislation tends to make it worse, not better.
August 27th, 2009 at 3:12 am
“When will our government give us incentives to save money?”
Word.
August 27th, 2009 at 10:57 am
So, are we going to destroy all the appliances that are turned in, even the ones that can be repaired the way we did with cash for clunkers? If so, how will that impact the environment. Cash for clunkers may have been a benefit to new car dealers and manufacturers, but it sure hurt repair shops, parts stores, used car dealers and car donation charities. Cash for appliances may have similar “unintended consequences”.
August 30th, 2009 at 12:41 pm
You know, I’m not sure whether I favor programs such as the “Cash for Clunkers” or “Cash for Appliances”… For one, I really want to take advantage of the latest “Appliances” program, and trade in an old refrigerator. But like you noted, I’m just not convinced this is the best stimulus for our economy. Anyway, time will tell.. It always does!
August 30th, 2009 at 7:07 pm
Good points. You may have overlooked one additional problem with this plan. It has an overall negative impact on the carbon footprint and probably on the environment. As does the cash-for-clunkers. The problem is that, if you consider the energy required for manufacture and transport of the new product, transport and disposal of the old product and compare that to the enegry savings over the lifetime of the new product you will discover that these programs are very poorly conceived. Not to mention the previous point about filling up the land fills. As far as economic stimulus goes, what do we expect to happen once the progam expires?
August 30th, 2009 at 7:30 pm
Its not a good idea to keep destroying everything in the name of saving energy. These vehicles and appliances should be allowed thier full economic life.
You can donate your car to needy charities at and qualify for tax offs.We represent over 40 charities from which you may chose the one to donate to.
August 31st, 2009 at 7:01 am
doantecarusa makes a great point, unfortunately the clunkers program prohibits this (by design).
Consider this ENVIRONMENTAL impact:
Average crushed car, about 10′ x 6′ x 2′ = 120 ft^3 x 750K clunkers = about 1M ft^3 of scrap. If you array them side by side this represents 2 square miles of scrapped clunkers 2 ft thick (or about 1250 acres)
Or, if you line them end to end you can span the US coast to coast …hey, maybe this is our new border fence?
… nice environmental management :(
September 2nd, 2009 at 8:13 pm
I know I’m really, really late on this and probably no one will read it, but the cash for clunker incentives were able to be and were used on SUVs and trucks. Considering even the new ones are still gas guzzlers, I refuse to believe that this program is based in actual environmentalism.
September 9th, 2009 at 6:42 pm
It’s already been pointed out, but I’d like to say it again: these programs are *NOT* environmentally friendly.
Discarding an older, less efficient vehicle or appliance for a more efficient one does *NOT* reduce your carbon footprint. The energy and resources required to manufacture the new one more than offsets the benefits.
We need to become less of a consumer nation, plain and simple. Then our environmental footprints will shrink. Until then, we’re just fooling ourselves.
We own a very small home. We use cloth diapers. When our old dryer broke, we switched to line drying. We homeschool and spend a lot of time at a home. We live simply and eat simply.
I say all this as a mom of 9 who drives a 13yo 15 passenger van. Crazy? I’d be willing to bet that our family’s carbon footprint is far less than that of the average family of 4.
September 16th, 2009 at 4:14 am
my God, i thought you were going to chip in with some decisive insght at the end there, but I guess I’ll have to check back for some more :-)