Some details on the proposals currently being made to offer consumers large credits toward the purchase of new vehicles if they scrap their old ones:

http://www.latimes.com/business/la-fi-auto-clunkers2-2009apr02,0,7130899.story

http://www.nytimes.com/2009/04/01/business/global/01refunds.html?ref=global

http://blogs.wsj.com/environmentalcapital/2009/03/31/german-lessons-is-cash-for-clunkers-the-answer-to-us-auto-woes/

http://news.bbc.co.uk/2/hi/business/7979208.stm

In my opinion, this will obviously create demand…by destroying some cars that work and by offering people more than market value for them (I’m assuming here because if it is less than market value people would rather trade them in, right?) it obviously affects the demand curve…but I’m doubtful that this is the cheapest way to go about saving the auto industry (if that is even worth saving which is another debate entirely).  It seems to me that whenever the government gets involved things tend to become more expensive…