Cash for Clunkers – Maybe not so "Wildly Successful"
The Car Allowance Rebate System (CARS) ("Cash for Clunkers") Cash for Clunkers program was deemed "wildly successful" by the Obama Administration. Their position was based on the assumption that approximately 360,000 cars that would otherwise not have been purchased, were sold under the program during July and August 2009.
Now over a year later, the data is in and it appears not everyone agrees with the "wildly successful" characterization. Among the critics of the Cash for Clunker program are economists Amir Sufi from the University of California Berkley and Atif Mian from the University of Chicago who have published a recent research paper analyzing its effectiveness in stimulating the US economy.
What Sufi and Mian found was:
"[W]e... find that most vehicle purchases induced by the program were borrowed from purchases that would have otherwise occurred in the very near future. In the subsequent ten months after the program (September 2009 through June 2010), high clunker cities purchased significantly fewer automobiles than low clunker cities. By the end of March 2010, seven months after the program, the cumulative purchases of high and low clunker cities from July 2009 to March 2010 were almost the same. In other words, the relative impact of the program on high clunker cities was almost completely reversed in just seven months."
Their research concluded:
"Our results reveal a swift reversal in auto purchases at the expiration of CARS, which highlights a strong inter-temporal substitution that quickly "crowds out" the initial effect. Our evidence suggests that the ‘cash for clunkers’ program, a program that cost $2.85 billion, had no long run effect on auto purchases."
And did Cash for Clunkers help lower income people in these economic hard times? Hardly - many lower income individuals purchase used vehicles and used car prices are now higher thanks to the compulsory destruction of over half a million used vehicles. A recent Edmunds report shows that used car prices are up on average 10.3% and for some models more than 30%, over the last year. This has been partially attributed to the Cash-for-Clunkers program.
So, it appears that this "successful" program handed out almost $3 billion tax dollars to individuals looking for a reason to upgrade their vehicles and in turn took about over a half million used cars off the market and destroyed them.