What an awful joke. Talk about short-sighted wastefulness.
Their two rationales were to 1) stimulate new auto sales and 2) get old, inefficient cars off the road and replaced with newer more efficient ones.
The first rationale is an interesting answer to public backlash over bailouts. It makes it look like the government is handing out money to the people, rather than straight to the car companies. Never mind that once you've got your $4.5K from the government, you're on the hook to pay for the rest of the car. So really, you've just been encouraged to subsidize car companies from your wallet, rather than your income tax. And please ignore the fact that the government'll be needing that $4.5k back at some point, since they had to borrow it from the ever-generous developing world and eventually the loans will come due. There's a reason Bernie Madoff is in prison; we should hold our politicians to the same standard of accountability.
The second rationale looks pretty sound on the surface, but remember that it takes energy and resources to build a new car, and any remaining use you could have extracted from the clunker (maybe by doing regular maintenance on it) is wasted. In other words: when you consider the whole life cycle of a vehicle, it's less efficient to buy a new one with good gas mileage than an old one with poor mileage. One might object that they could save more money on gas than the price difference between the new and the old car... but the math doesn't tend to work out in that person's favor, given the outstanding rate of depreciation on new cars. I imagine that the existing capital stock of vehicles could be maintained indefinitely, adding new ones only to satisfy growing numbers of drivers in the market (like we do with airplanes), but at some point we as a society decided that we'd rather throw our great masses of steel, glass, and rubber away every five years and have new ones made for ourselves. And the auto companies happily complied, producing vehicles that matched our expectancies in terms of lifespan.
It didn't have to be that way. Again, look at the aviation market. Planes are much more complex machines, and they stay in service for much much longer. I imagine that has a lot to do with lawfully required maintenance programs. What if it regular preventative maintenance on parts that are known to wear out after so many uses was required for cars, just like it is for airplanes? Oh, and what if instead of letting the government do that, we privatized all the roads, and let the owners decide what standards they want to require from their clients? Set up software that schedules and tracks the maintenance of each vehicle and a system of trust certificates that can be used for verification. You're maintenance bill would be higher, but your new-car-every-five-years bill would be zero. Plus the roads would be safer.
Not likely to get implemented any time soon.
That the program is being axed because it spent its entire budget in one week is ironic icing on the cake of centrally-planed ineptitude.
Update: well, I guess congress extended its funding by another $2,000,000,000 ($2B). True; that's a drop in the bucket next to the $1,000,000,000,000 ($1,000B+) we've spent in other bailouts, but if the program maintains its popularity, they'll have to keep re-authorizing that amount every two weeks. Fifty Two Billion is bigger than the bailout we gave to GM.