Cash For Clunkers: A Used Car Dealer's Warning

DORAVILLE, Ga. -- Despite the economy, James Thomas is still selling a good amount of used cars at the Auto Plaza in Doraville.
Most of his customers are looking to upgrade but still want something affordable. That could soon change.

"Unfortunately, I think the Cash For Clunkers Program is going to end up driving up the prices of used cars overall," said Thomas.

He explains it like this -- if folks meet a stringent list of requirments, the federal government is allowing folks to turn in their old gas guzzlers and get up to $4,500 cash to put toward a new fuel efficient car.

One of the main requirments is the dealers who take the old car destroy the motor then show proof of handing it over to a junk yard where it is crushed, parts and all.

Thomas says taking all of those older cars permanently out of circulation could very well affect supply and demand.

"Think about it. Some of those so called clunkers have a lot of life left in them, but if they never make it to another lot there's less of them to go around and that raises prices," said Thomas.

Another concern is that customers who could definitely afford a new used car will instead be lured by the idea of something brand new. While they will get $4,500 dollars toward the purchase of a new fuel efficient model they'll likely be signing up for car payments.

"I'd just tell people 'if you can't afford a car payment now, why even create one'," said Thomas.