ISSUE: After Cash for Clunkers

OUR VIEW: Cost of program shows repeating experience to be costly 

Despite its high profile and popularity among thousands of Americans, the “Cash for Clunkers” program had its problems. Dealers complained of delays in reimbursement by the federal government. Those selling used vehicles were not happy, and repair outlets saw the program cutting into business.

Now there’s reason for many Americans to see the program that paid Americans to trade in older vehicles on new ones as good public relations on the government’s part but not so good in just about every other facet.

Steve Stanek is a research fellow at The Heartland Institute in Chicago. He cites reports by auto industry analysts Edmunds.com that show American taxpayers spent $24,000 to subsidize each new vehicle sold through Cash for Clunkers.

It appears now, as many Clunkers critics predicted, people who were planning to buy a new car or truck in the next few months merely moved up their purchase to take advantage of the taxpayer-funded rebates. That has reduced sales that otherwise would be occurring now.

New auto sales dropped after the expiration of the Clunkers program in late August. Sales appear to have recovered in October, but Edmunds says October sales would have been even stronger if not for the Clunkers program.

Edmunds reports only about 125,000 of the nearly 700,000 vehicles sold through Cash for Clunkers were sold because of the program. More than 565,000 of the Clunkers-eligible vehicles would have been sold without the program rebates, which averaged about $4,000 per vehicle and maxed out at $4,500.

The average subsidy for each vehicle sold because of the Clunkers program comes out to about $24,000. That’s enough to cover the entire cost of a new Ford Mustang, Toyota Prius, Honda CR-V, Dodge Charger, Chevy Malibu, Jeep Wrangler or Nissan Altima, to name just a few of the scores of foreign and domestic vehicle models that can be purchased for $24,000 or less.

Stanek notes that the Obama administration attributes great things to the program. The auto sales spike boosted reported U.S. gross domestic product for the quarter. GDP increased more than 3 percent, and government figures say auto sales accounted for about 1.7 points of that.

“The upshot is an artificial spike in auto sales and a corresponding artificial spike in GDP growth. So for the $3 billion we spent on Cash for Clunkers, the net result is -- nothing,” Stanek says.

“Actually, it’s worse than nothing. The $3 billion was borrowed, which means we will be paying for it for years to come, putting the country even deeper into hock with China and other foreign lenders.”

Now the president and lawmakers have decided to undertake a similar program subsidizing purchase of Energy Star-rated home appliances including dishwashers, refrigerators, furnaces and air conditioners. The rebates will be $50 to $200 depending on the appliances purchased.

With the Cash for Clunkers numbers in hand, there’s reason to believe it is not a good idea.

As Stanek says, “We can expect the true per-appliance cost of the program to be vastly greater than advertised, as appliance buyers do the same thing car buyers did in Cash for Clunkers: move up purchases they were planning to make any way to take advantage of the giveaway of taxpayers’ money.”

You must be logged in to comment.