Thursday, September 16, 2010

Remember 'Cash for Clunkers'?

The so-called 'Cash for Clunkers' program last year was supposed to boost sales of motor vehicles, and get older, gas-guzzling models off the roads. According to the Boston Globe, it was less than successful by virtually every measure.

Why are used-car prices rocketing? Part of the answer is that demand is up: With unemployment high and the economy uncertain, some car buyers who might otherwise be looking for a new truck or SUV are instead shopping for a used vehicle as a way to save money.

But an even bigger part of the answer is that the supply of used cars is artificially low, because your Uncle Sam decided last year to destroy hundreds of thousands of perfectly good automobiles as part of its hare-brained Car Allowance Rebate System — or, as most of us called it, Cash for Clunkers. That was the program under which the government paid consumers up to $4,500 when they traded in an old car and bought a new one with better gas mileage. The traded-in cars — which had to be in drivable condition to qualify for the rebate — were then demolished: Dealers were required to chemically wreck each car’s engine, and send the car to be crushed or shredded.

Congress and the Obama administration trumpeted Cash for Clunkers as a triumph — the president pronounced it “successful beyond anybody’s imagination.’’ Which it was, if you define success as getting people to take “free’’ money to make a purchase most of them are going to make anyway, while simultaneously wiping out productive assets that could provide value to many other consumers for years to come. By any rational standard, however, this program was sheer folly.

. . .

To be sure, Cash for Clunkers gave a powerful jolt to car sales in July and August of 2009. But it did so mostly by delaying sales that would otherwise have occurred in April, May, and June, or by accelerating those that would have taken place in September, October, or later. “Influencing the timing of consumers’ durable purchases is easy,’’ Edmunds CEO Jeremy Anwyl wrote a few days ago in a blog post looking back at the program. “Creating new purchases is not.’’ Of the 700,000 cars purchased during the clunkers frenzy, the estimated net increase in sales was only 125,000. Each incremental sale thus ended up costing the taxpayers a profligate $24,000.

Even on environmental grounds, Cash for Clunkers was an exorbitant dud. Researchers at the University of California-Davis calculated that the reduction of carbon dioxide attributable to the program cost no less than $237 per ton. In contrast, carbon emissions credits cost about $20 per ton in international markets.

. . .

When all is said and done, Cash for Clunkers was a deplorable exercise in budgetary wastefulness, asset destruction, environmental irrelevance, and economic idiocy. Other than that, it was a screaming success.

There's more at the link.

What the author carefully doesn't mention is that Cash for Clunkers was devised to help the trades unions, who (thanks to President Obama riding roughshod over established US contract law) had just been handed control of General Motors and Chrysler. Both companies were mired in red ink (still are, for that matter), and something had to be done to help them sell more vehicles. It's no good handing one's political allies an economic basket-case, after all, is it?

That, more than anything, was the rationale behind Cash for Clunkers . . . and it still didn't work. So much for politicians trying to run the economy! (And that breach of faith with creditors and wholesale disregard of established US law is why I, and many others, have vowed never again to buy a new General Motors or Chrysler vehicle. We won't condone such partisan political shenanigans with our hard-earned dollars.)



Old NFO said...

Good post, the ones that REALLY got hurt are the little people (as usual)...

Anonymous said...

And the folks who took the bait and then got a very nasty surprise on their tax bill as $4500 of rebate showed up as Taxable Income. The feds giveth, the feds taketh away, with interest.