Cash for clunkers – what did you expect?

Back during the height of the recent recession we had the cash for clunkers where our government spent close to $3 billion dollars financing the trade in of so called “clunkers” for new cars in the hopes of providing a boost to the nation’s economy. The twofold strategy of the program was to give a boost to the auto industry where sales were lagging and at the same time to help reduce greenhouse emissions.

Earlier this month Brookings released a report “Cash for Clunkers:An Evaluation of the Car Allowance Rebate System.” Much of the discussion in the report is based on a paper from Resources for the Future titled “Evaluating “Cash for Clunkers: Program Effects on Auto Sales, Jobs, and the Environment.” Both papers make for very dry reading. They are very much factual oriented. The shortcoming of the papers if any is that is is not always clear exactly what data come from where. The worst data source was a survey of program participants that had only a 21 percent participation rate. That fact is only cited in the Brookings paper. I doubt that the data from the survey had a major impact on the findings cited in the two papers.

The main thrust of the papers was that the program did little to reduce greenhouse gas emissions and that the cost of the program for each new job created was quite high. The impact was to simply move vehicle purchases up in time. In short people bought cars in June that they otherwise, without the program would have purchased in August.

I would raise the question as to what did we expect from the program. It was set up to encourage people to trade in old cars and purchase new cars with somewhat better gas millage. It seems quite obvious that the goal was to simply move purchases up in time. Any criticism of the program on that dimension needs to be along the lines of was that movement effective. What is effective? I don’t know. Is moving purchase up six months good? Is moving them up three months good? Is moving them up a full year good? The real effect of any program of this nature is to provide a boost in jobs now while fully recognizing that we are paying the price of fewer jobs in the future. A car manufactured today for purchase today is a car not manufactured six months from now for a purchase then. Total vehicles manufactured will go up as now I am, for example, using the vehicle for nine years that I would otherwise have used for ten years. So the metric that should be used must answer the question of if the shift in vehicle purchase patterns was worth the money spent. The shift was going to happen. One should not criticize the program because there was a shift, but rather because the shift was ineffective in accomplishing the stated goals. The auto industry would argue that the program helped them where they were in dire straights due to a lack of sales. And I might add is this really any different than providing help to farmers in times of drought? Ask instead should the government be proving that help to either or both groups.

However it seemed many wanted to use the Brookings report to bash the cash for clunkers program without asking these important questions. George Will called it the “The lunacy of ‘Cash for Clunkers.’” Fox New said “Cash for Clunkers program falls short of goals to help economy, environment.” Autoblog said “Brookings Institution says Cash For Clunkers was a bust.” My favorite statement in what they had to report was

CARS did achieve its other goal of reducing the number of fuel-inefficient cars on the road, but that impact also was negligible, as the new, green, fuel-efficient cars bought within the program reportedly represented about half of a percent of all vehicles in the US.

They are really only said we got what was expected. Given that the program targeted the replacement of 700,000 cars that was only half a percent of the inventory. So the impact on overall fuel-efficiency was “negligible.” Did anyone who was thinking when the program was proposed and approved by the Congress do the math? How did they ever expect a different outcome? went further saying “Cash for Clunkers a near-total failure says … the Brookings Institute.” I don’t think Brooking put it that way. The data may say it is true, but all they gave was the data. They seem to have left the dramatic statements to others.

In the interest of conflict of interest I don’t work for the auto industry and never have. I did not take advantage of the program and I did not like it when it was proposed. My reason was one of too many loopholes in the system. With two cars one an SUV and the second a fuel-efficient sub compact it would be easy to trade both cars in, the SUV for a sub-compact and the subcompact for an SUV and reap the benefits of the program.

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