Cash for Clunkers, RIP: A waste of money and assets
posted at 4:10 pm on August 24, 2009 by Ed Morrissey
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Cash for Clunkers ends today after spending $3 billion, most of which still has yet to get to car dealers. Not only did C4C show a bumbling administration at just the moment when it asked Americans to trust it with our health care, it vastly overspent for the environmental and stimulus benefits it produced. ABC News looks at the former:
“Cash for Clunkers” has generated a surge in car and truck sales, as well as a comparable increase in complaints about the program. But whether or not the program — which is due to end at the end of the day today — meets environmental goals of reducing gasoline consumption and greenhouse gas emissions has received less attention.
“As an environmental program, Cash for Clunkers is basically overpaying for the environmental benefits,” said Christopher Knittle, an economics professor at the University of California at Davis who analyzed the Cash for Clunkers impact on the environment. …
Knittel, the economist at Davis who has studied gas prices and their effects on driving behavior, found that while the program might benefit the economy, it is an inefficient way to take older cars off the road, to lower carbon emissions and to reduce gasoline consumption.
“The fuel economy increase from the trade-in to new car seems large, but it doesn’t have that big of impact on environment,” he said.
Knittle calculated the program will save approximately 270 gallons of gasoline per car, per year. If a total of 750,000 vehicles are sold, as appears likely, approximately 12,000 barrels of oil a day will be saved in a country that consumes 9 million a day.
Was it worth $3 billion to save 12,000 barrels of oil a day? It amounts to a 0.13% reduction in gasoline consumption. The impact on carbon emissions is likely much less than that.
Cato says it may be the dumbest government program ever:
- A few billion dollars worth of wealth was destroyed. About 750,000 cars, many of which could have provided consumer value for many years, were thrown in the trash. Suppose each clunker was worth $3,000 at a guess, that would mean that the government destroyed $2.25 billion of value.
- Low-income families, who tend to buy used cars, were harmed because the clunkers program will push up used car prices.
But the real reason it’s the dumbest program ever:
- The auto industry received a short-term “sugar high” at the expense of lower future sales when the program is over. The program apparently boosted sales by about 750,000 cars this year, but that probably means that sales over the next few years will be about 750,000 lower. The program probably further damaged the longer-term prospects of auto dealers and automakers by diverting their attention from market fundamentals in the scramble for federal cash.
How many people bought cars that would have bought them soon anyway as they tired of their gas guzzlers? The better question will be how many didn’t. Whether Obama realizes it or not, people have economic and style incentive to trade up on a regular basis. In this case, Obama may have distorted the curve to entice people to do so now, but that just means that those consumers will not be in the market for a vehicle in the near-to-midterm future. It didn’t create sales; it just speeded them up.
And when did Obama decide to launch this program? Right at the end of the model year, when car dealers usually discount their existing inventory rather deeply. Customers already had incentive to buy in August. They won’t have any incentive now to buy in September and October, when the new models hit the showrooms and pricing hits its peak. On top of that, the destroyed vehicles mean that 750,000 families that might have been able to access less-expensive vehicles to improve their financial flexibility may not be able to afford anything at all.
Three billion dollars may not be the biggest boondoggle ever to come out of Washington, but it’s easily the dumbest — and one of the most incompetently handled.
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8/10 from what I’ve read.
But hey, some of them are made in the US. The fact that all the capital goes to the far east is an intellectual leap too far for an administration obsessed with short term gain and cosying up to corrupt unions.
Anders on August 24, 2009 at 6:57 PM
Hey look at it this way….you still have a clunker
/s
CWforFreedom on August 24, 2009 at 6:59 PM
So, has anyone actually done the math to see how efficient it was for the government to create a website for auto dealers, create the paperwork (that takes the dealer 1/2 hour to fill out, only to get rejected) and set up the payment transfer system, using civil servants and probably paying them overtime? Then add in the interest cost to the dealers (or the auto companies) for the time it takes Uncle Sam to send in the money. It will be interesting to know how much the taxpayer and the car folks spent for that little giveaway, which will probably result in little to no net increase in car sales over the long term.
spudmom on August 24, 2009 at 7:00 PM
I heard a fellow speaking on the radio today about how great he thought the C4C program is. He went on to point out that it worked so well that the local Toyota dealer (Germain) was going to continue it on their own with $4500 credits.
Hmmm you mean they could have had the dealers volunteer to do it and we would not be out 3 plus billion?????
Facepalm
CWforFreedom on August 24, 2009 at 7:01 PM
No probably about it
CWforFreedom on August 24, 2009 at 7:02 PM
Excellent point. Ed is certainly correct–to some extent–when he says, “It didn’t create sales; it just speeded them up.”
But I guess I’m one of the exceptions. My wife & I had been looking around for a better car for almost a year, and we were not even considering a new one. We had grudgingly agreed that we might have to pay $10-12,000 to get something decent, reliable (my wife occasionally travels on business), and economical (we were using an elderly minivan for almost all driving, city and highway).
We were able to buy a new econobox with a great warranty, with roadside assistance included, for $12,000 out the door. Year-old examples of the exact model we bought are readily available for $13,000, plus tax, title, etc.
Really basic econoboxes were available on my dealer’s lot for $7,000, since the manufacturer was offering a $2,000 rebate in addition to the C4C allowance. I have to believe that some of these sold to people like me who otherwise would never have considered buying a new car.
This program was nothing but a
stimulus programbailout for the auto industry and the UAW. As one critic said, it’s equivalent to taking water out of one lake and pouring it into another.But I don’t believe that it JUST pulled sales ahead. I believe that it transformed some used-car shoppers into new-car buyers.
Owen Glendower on August 24, 2009 at 7:06 PM
5-10 years from now people will look back at C4C and laugh at the joke it is.
CWforFreedom on August 24, 2009 at 7:10 PM
Years from now, after this one-term disaster of a president is voted out of office and our rights as citizens have been restored, I’ll be sitting around a campfire in the Adirondack mountains getting drunk with my buddies……and as we reminisce about things large and small, past and present…..one of my drunk buddies will bellow, “hey, remember Cash For Clunkers”?
We’ll laugh, and belch, and just whoop it up till the Park Ranger throws us out.
Ah, the fun we’ll have.
David2.0 on August 24, 2009 at 7:30 PM
You make a fair point and anecdotally you are an example of your point, but now that it is over I am certain that it will also have the opposite effect down the road. New car buyers in 2009 and 2010 will now become new car buyers in 2011, 2012…Or maybe they become used car buyers trying to bridge themselves along in wait for the next government program.
If the car companies suffer a slowdown again, and you’d have to expect they will, then inevitably the debate becomes whether this program should be reinstated again. For a limited time only, of course (wink-wink). The thing is that as long as the possibility remains out there, people aren’t going to want to be the fool that walks into the dealership and haggles with a salesman. Who wants to be the fool that buys a car right before, or after, the handout?
My car runs a little spotty lately. I’m hoping to get another couple years out of it, but who knows? Fortunately, I have some cash set aside when the time comes but there are always 100, or more, better uses for your money than buying a car. At least while you have something that is functional.
If the car broke down now, or even in the next several months, I’m not going to want to be the fool that buys a car months after a $4,500 rebate expires. Even though I have the money, I’ll be much more inclined to buy an old Accord or something and try to bridge towards 2,3,4 years down the road. I’ll be able to keep saving my money, and maybe getting a little interest on it even. In the meantime, I can wait and see if this type of “deal” resurfaces again.
C4C has made purchasing a car a game of chicken between consumers and producers, now that it has expired. Consumers will always win over time in cases like these. We can wait it out much longer than they can. Long term, I think this will be a disaster for the car manufacturers.
stldave on August 24, 2009 at 7:57 PM
In a word:
Stupid.
RedNewEnglander on August 24, 2009 at 8:37 PM
All this to get the gas guzzlers off the road and the Ford F-150 will still probably be the number one vehicle sold in America.
Jeff from WI on August 24, 2009 at 9:27 PM
I couldn’t agree more, although I doubt that the program will be reinstated.
Auto-industry analysts have pointed out that the coming months are traditionally the time when discounts on existing inventory were being thrown around to make way for the new model year…2010, in this case.
But no doubt a great deal of business got pulled ahead by the C4C program, to the point where dealers were doing LESS discounting from MSRP than they had been doing before the program. No surprise. I bought a Hyundai Elantra, and since the manufacturer was offering a $2,000 rebate, you were at $6,500 off MSRP when you walked through the door.
Incidentally, do a bit of research on year-over-year July 2009 sales for Honda, Toyota, and Hyundai, and you’ll see that Hyundai is a very smart marketer. In addition to the $2,000 rebate, they threw some front money to their dealers in early July and essentially said, “Make deals.”
Everyone agrees that September and October sales–at least–will be depressed because of the C4C “hangover.”
So the question is, what will the car dealers do now?
Answer: Severe discounting on 2009 inventory.
I believe that Chrysler to some extent matched the $4,500 C4C credit with rebates or discounting. I would not be surprised to see some car dealers–with or without manufacturer support–CONTINUE the C4C program. Here’s the ad headline: “Your trade-in is STILL worth $4,500.”
Anybody want to bet?
Owen Glendower on August 24, 2009 at 10:17 PM
No, kidding? Taxed as income, huh? I’m shocked. SHOCKED, I TELL YOU!!!
GrannyDee on August 25, 2009 at 12:01 AM
Buying a new car is ahead of buying lottery tickets for getting a return for your dollar. That’s why I kept my Jeep with 180,000 miles on it and bought nearly new 4 door Jeep Wrangler 4wd soft-top with only 8,000 miles on it for under 20K at Carmax. I now have two cars for less money than I would have paid for a new one. The thought of the govt destroying my old Jeep, that could have helped a charity, is the very reason why I didn’t trade it in.
Nice job, Zero. I bought a vehicle that puts out more carbon AND I still have the other to give to one of my kids in a couple of years or to someone else.
Carmax was busier than any of the new car dealers that I visited last week.
slug on August 25, 2009 at 12:24 AM
Our economy is hurting, so let’s max out all our credit cards and pay people to destroy perfectly good cars!!!
Yeah…that’ll help…
/sarc>
Prediction: Watch for the crying and whining from the auto workers and car dealers (the ones which survive the not-getting-paid-for-clunkers fiasco) later this year when even bigger layoffs happen. Maybe then they’ll want the government to buy all of us new cars whether we want them or not!
landlines on August 25, 2009 at 2:14 AM
A quote from the referemced ABC article:
I wonder what the CO2 these engines pull out of the air is turned into?
unclesmrgol on August 25, 2009 at 7:44 AM
My take on the environmental benefits of destroying a bunch of perfectly usable vehicles:
unclesmrgol on August 25, 2009 at 8:09 AM
My inlaws tried for the cash grab last weekend before the program ended. Dealers were “high”. Car prices were very close to MSRP, with few incentives. Bottom line, no real deal, in fact dealers were making pure profit off the MSRP to invoice spread, which they usually have to eat into to get the sale!
NickelAndDime on August 25, 2009 at 9:34 AM
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