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September 15th, 2009 at 9:18 am

Did Cash for Clunkers Work?

The Cash for Clunkers program created a lot of buzz during its time.  The government drummed up $1 billion to be used by consumers toward the purchase of a new, more fuel-efficient car.  Each consumer could be given up to $4500 towards that new car, and the credits were snatched up so quickly that not only did the government rush to approve another $2 billion, but the program ended months before its proposed expiration date.  Sounds like a success, but did it really work the way it was meant to?

According to the Forbes website, car sales in August were up 26.5% from July, and there were a reported 700,000 new car deals made across the country in direct response to Cash for Clunkers.  While those numbers are impressive, we should look a little deeper.  Will the effects be lasting?  What were the other consequences?

The Shredding of the Clunkers

Encouraging people to drive more fuel-efficient cars is an excellent idea.  Getting them out of their so-called gas-guzzlers will save them money in the long run and have a positive effect on the environment.  However, there has been a lot of debate surrounding the way the cars that were turned in for the program were taken off of the road: they were required to be shredded.  No donation to charities or countries in need, no spare parts or scrap metal saved—the whole thing had to be shredded.

True—this does ensure that the turned-in cars remain off of the road.  But the program turned away cars made prior to 1989, which eliminated many of the cars that are true gas-guzzlers.  And while there were different requirements for different types of cars to qualify (i.e., sedans vs. pick-up trucks), many people could qualify just by getting a new car that got only 2 miles per gallon better than their current one.  This leads to perfectly good cars with at least decent gas mileage being completely destroyed.

Who Really Used Cash for Clunkers?

Used cars did not qualify for this program; you had to buy new.  That’s not necessarily bad by itself—who doesn’t love that new car smell?  But new cars are always more expensive than used cars.  Even with the $4500 tax credit, this leaves out the people with limited funds who may truly have been in need of a better car, new or not.

It has been argued that the people who took advantage of Cash for Clunkers were the ones that were already in the market for a new car, the same people that already had enough money and a good credit score.  The only real difference could be that it may have enabled them to make their purchase sooner than they were anticipating.  So in this case, purchases that would have been made during the remainder of the year were simply crammed into the month of August due to a limited-time offer.

The overall idea was definitely a positive one, fueled by good intentions.  Yes, it did spark sales, but the numbers are still not in the range they used to be in past years before the recession.  With Cash for Clunkers over (and many dealerships still waiting to be reimbursed from the government…), it most likely will not create any long-term effects in the way of auto sales, and people who really needed a new car in exchange for their 1988 model are still waiting for their stimulus offer.

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  • Jeremy
    10:37 am on September 17th, 2009 1

    Your statement “…they were required to be shredded. No donation to charities or countries in need, no spare parts or scrap metal saved—the whole thing had to be shredded” is not true.

    The engines were required to be seized, but other parts were allowed to be scrapped. The dealerships have 180 days before the car has to be compressed, allowing ample time to take other parts of the car to be used.

    The engines (which would be the most valuable part if they were not filled with liquid glass) were not allowed to be resold.. but you could scrap the other parts of the cars, as well as scrap the metal if you so desired. Many junkyards have done this exact thing.

    At least.. this is how I understand it.


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