Only government would be so backward as to take functioning used automobiles–objects of great value to many people who cannot afford to buy new ones–and require that they be destroyed. This decreases the supply of used cars, causing the price of used cars to rise generally, and therefore making it harder for lower income Americans to buy them. Of course, we should not be surprised to see the government hurting lower income Americans under the pretense of helping them; this is how the government expends much of its (our) resources.
Moreover, our entire economic crisis was caused by a credit bubble. Before the crisis can end, bad credit must be liquidated. Cash for clunkers only exacerbates the credit crisis; it encourages many people (who may or may not lose their jobs within the next year) to take out new car loans, and the government is effectually paying their down-payment in the form of a $4,500 rebate. This is exactly the sort of government “solution” that caused over-investment and distorted demand in the housing market. Cash for clunkers will certainly be a contributor, albeit a minor one, to financial firm failures around the country over the next few years.