Car Insurance Companies Benefit from ‘Clunkers’ Program


The federal government’s popular Car Allowance Rebate System (CARS) program has unintentionally helped car insurers boost their sales, according to many insurance industry analysts. Commonly known as the “cash for clunkers” program, or simply ‘clunkers’, the government initiative was initially conceived to jumpstart the ailing car industry.

Car Insurance Companies Benefit from ‘Clunkers’ ProgramAmericans who traded in their old vehicles were eligible for tax rebates as high as $4,500, depending of course on the new cars they plan to buy. In order to avail of the maximum amount, motorists must buy a new car whose mileage is at least 10 mpg better than their aging cars. The program run into problems during its first week, with the initial $1 billion allotted quickly running out. The federal government then suspended the ‘clunkers’ system before injecting another $2 billion to subsidize more vehicle purchases. The program drew to a close just last week.

According to figures collected by different auto industry research bodies, the program resulted in a huge boost for car makers and dealers, who saw their sales decline during since the beginning of the economic recession. In February, prior to the CARS initiative, car and light truck sales plummeted to 9.1 million units from 16.5 million during the same month in 2006. Just this July, car sales have spiked significantly to 11.2 million. The figure is the highest since September of last year.

Car manufacturers have been suffering considerably from low sales for the past three years, prompting the Obama government to introduce new measures to jumpstart the industry.

However, some experts say that the clunkers program has benefited more than just the struggling car industry. With the sudden increase in new cars, auto insurance companies had a field day with the influx of new customers and clients. In fact, insurance providers are expected to earn $375 million in revenues from insuring newly bought vehicles.

When the clunkers program ended, a total of more than 700,000 vehicles have been sold by dealers across the U.S. The figure represents the sudden purchases of new cars during the program’s duration from July to August 25. Many insurance analysts agree that the large number of cars has undoubtedly provided many insurers new opportunities to market their products and services to new car owners.

The clunkers program may have also saved the car insurance industry from more losses. Experts reveal that the industry has been struggling with increasing medical costs, a sudden rise in insurance claims, and poorly performing investments.