If your trade-in vehicle meets conditions (must be drivable, insured at least a year prior, get 18 mpg or less, and be post-1984), you can receive a $3,500 voucher for buying
- a vehicle with 4 more mpg compared to the trade-in ($4,500 if 10 mpg better)
- a small truck with 2 more mpg ($4,500 if 5 mpg better)
- a medium sized >15 mpg truck that gets at least 1 more mpg ($4,500 if 2 mpg better)
- a medium sized truck that gets at least 15 mpg and your trade in is a larger truck
- a larger truck that is smaller than your 2001 or earlier trade-in
The net result is that the government will overpay for these trade-ins but still receive something of value. However, they will then take this valuable car and destroy it.
How is this possible stimulative?
If people buy more cars, then perhaps it is stimulative for the auto industry. But we as a society are spending $3,500 to buy a car worth maybe $2,000, and then destroying what we bought. It stimulates one side while ignoring the hidden costs of where the money is coming from to finance the program (see Bastiat's broken window fallacy). The government, I am guessing, is hoping that a large positive externality exists from doing this, but this ignores that
- more efficient cars are driven more than less efficient cars (Prius drivers drive more)
- the savings will be minimal (as little as 1 mpg savings)
- many buyers likely would be buying these cars anyway