Did Cash for Clunkers Do Its Job?

The government’s CARS 2009 Cash for Clunkers program has come to an end, prompting anyone with a point of view to attempt to spin the outcome. “An unqualified success,” say its backers, including the Democrats in Congress and the Obama administration. “Another instance of government ineptitude,” say its detractors, who include many prominent Republicans. “A clear win for the environment,” claim parties as different as the Alliance of Automobile Manufacturers and the Obama administration. “An expensive boondoggle that won’t help the environment at all,” retort its detractors, including some with a leftist, environmental slant and some rock-ribbed conservatives.

Amid all the claims and counter-claims about Cash for Clunkers, one thing is clear: The CARS 2009 program stimulated the sales of new, more fuel-efficient vehicles. When all is said and done, the CARS program provided the impetus for more than half a million new-vehicle sales at a time when the auto industry was suffering in an unprecedented way. You can certainly ask the question, Were the renewed new-car sales worth the $3 billion in government spending that it took to generate them? But one thing abundantly clear in the aftermath of the program is that the $3 billion that was spent on it changed the market. Again, you might contend the change wasn’t positive or worth the precious tax dollars, but it was change.

Just as when car manufacturers offer cash back on car purchases, dollars and a deadline motivate potential buyers to get off the couch. In the case of CARS 2009, it very quickly changed what people wanted to buy as well. Small, fuel-efficient vehicles immediately got much more popular, and vehicles that didn’t have those attributes fell by the wayside. If you agree that dollars motivate behavior, it is not hard to understand why consumers’ tastes changed. Even though small cars are frequently put on sale by manufacturers, an incentive of $4,500 on a vehicle that might retail for $18,000 is absolutely unprecedented. Yes, there were some strings -- you had to own a qualifying clunker -- but this was indeed the chance of a lifetime. Americans are pretty quick to recognize a good deal when they see it, and more than half a million eager buyers took advantage of the government’s plan and their fellow citizens’ tax dollars.  

We have already heard the claim that the CARS 2009 program didn’t really create new-vehicle sales; it simply “pulled forward” many new-car sales that would have happened eventually anyway. There is some truth to that, but CARS 2009 also succeeded in creating a substantial number of incremental new-vehicle sales, because it is more than likely that in the absence of the program, many of the “clunkers” would otherwise have been replaced by a newer used vehicle. Or they might not have been replaced at all. Used-car retailers, who were left out of the program, undoubtedly feel ill-used, but if the goal was to create new-car sales, the goal was realized.

In the heavily politicized world in which we live, debate on CARS 2009 will continue, but to the extent that it got American consumers in a car-buying mood again, it was a significant success. Now that it’s over, though, will consumers sit on their wallets again until another CARS-like program comes along?