Cash For Clunkers - Sucess or Failure
The Car Allowance Rebate System (CARS) also popularly known as “Cash for Clunkers “ was a program designed by the United States government to stimulate the economy by boosting auto sales and at the same time introducing cleaner and more fuel efficient cars. This program, signed into law by President Obama was designed to motivate consumers to trade in their old and less fuel efficient vehicles for newer and better fuel efficient vehicles and in the process getting a credit of $3500-$4500.
This program started on July 1st 2009 and ended August 24th 2009. The initial $1 billion budget for this program was exhausted by the end of July due to greater than anticipated participation and by public demand the US Government approved additional $2 billion for this project. At the end of the program, 677,081 approved dealer transactions were submitted totaling 2.85 billion dollars.
The program was declared successful by many while others were not so convinced of the success of this program. There has been much debate about this issue. Some of the questions raised around the country were, “did this program create the desired economic stimulus or did the tax payers end up subsidizing the 700,000 new car purchases?”,” did this program benefit the environment in a positive way by introducing more fuel efficient cars?’. In the end the most crucial question on everyone’s mind was weather this program worth it?
Looking at statistics from the CARS program, we see that 85% of trade-ins for the program are trucks and 59% of new vehicle purchases are cars. Also cars purchased under this program are 59% above average than the cars traded in (average fuel economy for trade in was 15.8 MPG while average fuel economy for new purchase was 24.9 MPG). It is evident from these statistics that this program was successful in motivating consumers to buy more fuel efficient cars thereby impacting the environment positively.
While on one side this program has been successful in bringing newer and cleaner cars on roads, on the other hand it did little to stimulate the auto industry, which was one of the main reasons for designing this program. Again looking at statistics from the CARS program, it is clear that the program benefited the Japanese and Korean car companies more than the American car companies. Out of the top 10 new vehicles purchased, only two were American. Japanese and other foreign car manufacturers also dominated the market for new auto manufacturing.
The CARS program requires that all traded in vehicles be destroyed so that it cannot be resold for use either in the US or anywhere else. This according to some environmentalist is counter -productive for the environment. Cars that would have run fine for another few years were destroyed. They argue that while one way of being green is to drive a more fuel efficient car, the other way of being green is also to recycle a car by buying a used one.
Auto sales analysts at Edmunds.com also calculated that this program cost the taxpayer $24,000 per car and the additional car sales due to the program were relatively low. Though nearly 250,000 new cars were sold in the first four days, analyst at Edmunds, by looking at sales of luxury cars and other vehicles not included in the cash for clunkers program and using relationship between sales volumes of those vehicles and types of vehicles sold under the program, determined that only 125,000 extra vehicles were sold that would not have been sold otherwise.
The cash for clunkers program had both a positive and negative impact on the country. It added to the national debt, gave foreign auto makers a boost rather than the American auto makers, but it also stimulated the auto industry giving it the much needed boost and motivating consumers to buy fuel efficient cars which will further motivate the auto manufacturers to innovate. After looking at all the data, in my opinion the cash for clunkers program did give the economy a boost but it was a very short lived one and the US auto industry needs much more than that to survive and compete with foreign car manufacturers. I think unless the US government makes plan to create more jobs and stabilize the economy, another cash for clunkers program will not do much good to the United States. US needs a permanent solution to fix the economy and programs like CARS are only a temporary fix.
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Student at West Chester University
