It is sad to see that this is so rampant. Some of the kids at school are the following: loaded new Lexus IS250, new Charger RT, lifted Hemi Rams abound, a 2010 Camaro SS, H3, and a 69 Camaro (nice SS clone). Lots of imports.
Before mine were of age, i discussed w/ several of the parents around work how they handled cars and the expenses around them. I took what I thought was the best of their approaches and came up with the following:
1st) Mom had a few equipment requirements beyond what I was going to require so we settled on this. They had to have a 4 star crash rating, dual airbags and anti lock brakes. Unfortunately, that ruled out the classics that one of the twins wanted.
2) We matched the money they saved for a vehicle. If they only had $1000 saved, we added $1000. This way we were only as committed as they were to saving. I have also noticed that they take very good care of their cars where as some of the other kids around were given the cars and don't seem to really value what they have. Seems to have worked out pretty well for us. The oldest excelled and got a Jeep Wrangler (Her dream car for her 1st car. Definitely a Chick Jeep w/ 31" tires & stereo) The twin girls figured out that they go around together 95% of the time so why have two cars? They didn't save as much $ and compromised with each other enough to meet in the middle and get an extended cab Ranger in bright yellow, affectionately known as Tweety.
3) Because all 3 are really busy w/ after school sports and studying, we agreed to pay for some gas, since they really can't get a job that accommodates those schedules. How we determined how much gas was that I drove each of the vehicles to determine what kind of MPG they each got when driven correctly. Using that we mapped out where they had to be and the mileage incurred. With that, we issue allowance based on gallons of gas and deposit it into their acct each Sunday night. If the gas lasts more than the school week they have some gas to go out on the weekend. If not, there are more baby/pet/house sitting jobs in the neighborhood to earn money or car-less friends who can chip in on the gas.
4) Insurance--- as long as they maintain GPA's to get the academic discounts and don't get any tickets or in wrecks, we pay the insurance. They also had to each save up the deductible and have it in their savings accounts before they get turned loose in the car w/o Mom or Dad sitting in the seat next to them. If they don't maintain all of that, they pay the difference. They know how much we pay for their insurance. We made sure of that.
I feel like these kind of measures keep them in check and set them up for success in the real world vs. learning at such a young age what a bail-out is!