Verdict is in on Cash for Clunkers

Earlier this month, I wrote that it was difficult to find a standard by which Cash for Clunkers, the government giveaway program to help people buy new cars, would be judged. First it was funded with $1 billion, then when it became a hit, another $2 billion was added. In both cases, there didn’t seem to be firm economic analysis ahead of time on what the payback to the economy would be.

In a subsequent conversation in the comments section, I said:


Why don’t we commit to programs that DO have a meaningful measure of success? Because we don’t WANT to because then someone might say we failed. So now we don’t even try.

We just keep things open-ended. Maybe after we see the “results,” we’ll come up with the standards for measuring so we can say, “Yep, it was a success all right.”

The program ended Monday evening. Today, it was declared a success according to this release from the White House:


The CARS program came to a close Tuesday night with nearly 700,000 clunkers taken off the roads, replaced by far more fuel efficient vehicles. Rebate applications worth $2.877 billion were submitted by the 8 p.m. deadline, under the $3 billion provided by Congress to run the program.

Cars made in America topped the most-purchased list, from the Ford Focus to the Toyota Corolla to the Honda Civic.

“American consumers and workers were the clear winners thanks to the cash for clunkers program,” said U.S. Transportation Secretary Ray LaHood. “Manufacturing plants have added shifts and recalled workers. Moribund showrooms were brought back to life and consumers bought fuel efficient cars that will save them money and improve the environment.”

“This is one of the best economic news stories we’ve seen and I’m proud we were able to give consumers a helping hand,” Secretary LaHood said.

According to a preliminary analysis by the White House Council of Economic Advisers, the CARS program will:

Boost economic growth in the third quarter of 2009 by 0.3-0.4 percentage points at an annual rate thanks to increased auto sales in July and August.

Will sustain the increase in GDP in the fourth quarter because of increased auto production to replace depleted inventories.

Will create or save 42,000 jobs in the second half of 2009. Those jobs are expected to remain well after the program’s close.

Ford and General Motors recently announced production increases for both the third and fourth quarters as a result of the demand generated by the program. Honda also said it will be increasing production at its U.S. plants in East Liberty and Marysville, Ohio and in Lincoln, Alabama.

In addition, the program provides good news for the environment. That’s because 84 percent of consumers traded in trucks and 59 percent purchased passenger cars. The average fuel economy of the vehicles traded in was 15.8 miles per gallon and the average fuel economy of vehicles purchased is 24.9 mpg. – a 58 percent improvement.

“This is a win for the economy, a win for the environment and a win for American consumers,” Secretary LaHood said.

With the end of transactions under the program, the Department of Transportation is augmenting a team that already includes more than 2,000 people processing dealer applications for rebates

LaHood makes an odd prediction in that release; that the program will “sustain the increase in the GDP in the 4th quarter.”

According to the Bureau of Economic Analysis at the Department of Commerce, the latest data is for the 2nd quarter of the year and it dropped 1 percent. Car sales added only .2 percent to the GDP in the 2nd quarter.

The third quarter results won’t be released until October. If LaHood is right, the Cash for Clunkers program will be responsible for ending the recession. Now that’s a yardstick!

Some of the consumers may be having “buyer’s remorse,” according to a study in USA Today:


A survey of nearly 1,000 participants in the program found 17% say they have some doubt or serious doubts about having bought a new car, says CNW Market Research. Most said they regret now having a $275 to $350 per month car payment that didn’t have before the purchase. Typically, buyers’ remorse hits roughly 6% to 8% of new-vehicle buyers within a month. But dealers don’t have any regrets.

  • Jim R

    But the auto dealers are already saying that auto sales will tank in the next quarter since for the most part those who wanted a new car bought one. In fact, one pundit said to wait until Nov to start buying again, when the showrooms are refilled and the dealers again have to offer deep discounts to move inventory, continuing to drag down the auto industry. Those 42,000 jobs saved? That comes to $47,619 per job. For a temporary increase in employment. And now, like people who couldn’t afford their mortgages, we have a slew of people who won’t be able to keep up with their car payments – far more than those that have simple “regret.” This will play out as a massive fail and waste of money, no question.

  • BJ

    Can’t wait till we “bail out” the car payments of these people who could not afford to buy the cars in the program.

  • MNguy

    Destruction of “clunkers” represents a loss of value to the economy. Better to have recycled these inefficient cars than to have destroyed them.

    I still own a car that is 9 years old and is very useful if less efficient than current models. Driving it less helps to cut my gas costs. Behavior is more important than policy.

  • Bob Moffitt

    Yawn. You C4C haters still here? How last week.

  • kennedy

    Anecdote: I have a few friends who took advantage of the C4C program. They thanked me for funding their purchase but did not accept my request to borrow their car if I needed it. They did not need the subsidy.

    I also have a few friends driving real clunkers. Even with the government subsidy, they could not afford to purchase a new car.

  • sm

    I saw two flatbed trucks today piled high with crushed clunker carcasses, heading out to… where? It seems such a waste. Like tearing down and building sports stadiums every 20 years. What a dumb society.

  • Paul H

    I thought the Midmorning discussion of the environmental effects of C4C was too brief and too dismissive. Mr. Welch said that the average improvement in fuel economy was 6 mpg; the Wall St. Journal reported a week or so ago (consistent with the White House statement) that the mpg increase averaged 9 mpg on the trades. If the number of vehicles traded in was 600,000, and we assume the cars are driven 10,000 miles per year, the gas savings will be 135 million gallons for the first year [(10,000/16 – 10,000/25) x 600,000)]. (Incidentally, when fuel economy is figured on a gallons per 10K mile basis, as some nations do, we can see that an increase of 18 to 22 mpg. saves more gas than an increase of 30 to 37 mpg. even though the percentage change is about the same in both instances.)

    With respect to sm’s comment above, the junked cars are not completely wasted. Parts (other than the engine) are salvaged and the rest is recycled as scrap metal.