Is Cash for Clunkers an Economic Stimulus?
Rebate Program Statistics Reveal Fuel Economy & US Car Sale Increase
Aug 29, 2009
Since the popular Cash for Clunkers program ended for US consumers on Monday, August 24, the debate over the program's efficacy continues. Preliminary statistics released August 26, 2009 by the Car Allowance Rebate System's (CARS) government website indicate great successes from the rebate program.
Of course, detractors of the program mention several possible scenarios, yet to unfold, which could negatively impact recovery from the recession. Ranging from overwhelming scrap yards to stealing business from repair facilities, actual impacts will not be known for several months.
Obama's Auto Industry Stimulus Success
In the short term, there can be almost no doubt that the Obama administration's Cash for Clunker program has provided a stimulus for the auto industry. The statistics released by the White House Council of Economic Advisers indicate immediate positive consequences for Detroit and the US:
- 39 percent of new vehicles sold under the program are manufactured by the Big Three Detroit auto makers. Additionally, the Toyota Corolla, Honda Civic, Toyota Camry and Ford Focus are the biggest sellers, in that order. They are all manufactured in the United States as reported in Ken Thomas and Stephen Manning's August 26, 2009 AP article, "Cash for Clunkers under budget with 690,000 sales".
- Third quarter economic growth is predicted to receive a 0.3–0.4 percent boost (annual rate) due to increased car sales in July and August.
- GDP growth is expected to continue into the fourth quarter.
- 42,000 jobs will be created or saved in the second half of 2009 as auto makers replenish inventory. These jobs will remain into the future.
- The new vehicles purchased have an average fuel economy of 9.4 mpg more than those traded in.
While statistics may not always provide a clear picture of economic impact, automobile manufacturers in the US have definitely put people back to work. This means more income and more consumption which will ripple out from the factories into local cafes, lunch stands, pubs and other businesses that serve factory workers.
Possible Negative Effects of Cash for Clunkers
Not everyone agrees with the administration's rosy picture of success. Detractors mention the overall decrease in fuel usage and emissions is just a drop in the bucket. Life cycle analysis that considers emissions from all aspects of the program has not been performed. Many other examples of unintended (and yet to be realized) consequences have been proffered:
- Repair shops may be hurt since new cars will need less maintenance. This could trickle up to parts suppliers.
- A large quantity of scrap has been created from the clunkers. Many of these vehicles could have been driven for years. Also, reclaiming steel from the clunkers adds to the carbon footprint of the program.
- Consumers likely bought vehicles in larger numbers due to the rebate. This will likely reduce high dollar durable goods sales, including vehicles, in coming months.
- Debt payments were created for many consumers who were driving debt-free vehicles.
- Dealerships have not received the much needed rebate cash from the government with the promised speed.
Was CARS a Successful Stimulus or a Failure?
This will be debated for months to come, and the full impact of the program may never be quantifiable. However, the size of the program should be kept in perspective. The dollar amount and the environmental impact are both small relative to the big picture.
Three billion dollars is a lot of money, but it is only 0.4 percent of the amount spent on the economic stimulus and 0.375 percent of the spent and approved budget for the Iraq war so far in 2009. Emissions and fuel use reductions are both estimated to be less than one percent.
As far as emissions and fuel usage are concerned, small steps are needed to achieve large goals. The small scope of a program does not preclude its importance and Cash for Clunkers makes a positive impact reducing fuel consumption and emissions.
Today, this program is making Wall Street and many American people feel good. And, even if the only stimulus provided is emotional, it may be just what the country needs to turn the economic corner. While people will continue to take shots at CARS, it is a success for today.
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