When Alan Blinder first proposed the Car Allowance Rebate System (CARS), commonly referred to as the Cash for Clunkers program, in a July 2008 New York Times op-ed, he foresaw benefits to the economy and the environment, and a “more equal income distribution.” The program has fallen rather short of its intended mark.
Most of the media have been calling Cash for Clunkers a huge success because of overwhelming participation, which resulted in about 700,000 trades. But Edmonds.com, a leading automobile-consumer resource, issued a press release in October claiming that “Cash for Clunkers cost taxpayers $24,000 per vehicle sold.” Analysts looked at the number of luxury vehicles and others not included in the program and used the historical relationship between those numbers and the seasonally adjusted annual rate of cars sold to determine how many cars would have been sold, were it not for Cash for Clunkers. The analysis determined that of the nearly 700,000 purchases, only 125,000 would not have happened anyway. The others were already planned—buyers who had heard the program was coming and waited to purchase a vehicle, or those who perhaps would otherwise have held on to their “junkers” a little longer. The White House returned fire, suggesting that this was equivalent to saying that “all the other cars were being sold on Mars, while the rest of the country was caught up in the excitement of the Cash for Clunkers program.”
Still, the program’s boosters ask, don’t we have cleaner air, now that all those gas-guzzling pick-ups are off the road? Perhaps, but not by much. The Associated Press reports that the program cut carbon-dioxide emissions by about 700,000 tons per year—out of a total 6.4 billion tons—a drop in an oil field. And the long-term effect on carbon emissions is hard to predict. Dr. Christopher R. Knittel of the University of California, Davis, points out that those who have more fuel-efficient cars generally drive more. People who might have taken public transportation or carpooled now have less reason to do so. We have spent billions of dollars and may make only a minimal impact on carbon emissions.
In his July 2008 op-ed, Blinder wrote, “It won’t surprise you to learn that the well-to-do own relatively few clunkers. Most are owned, instead, by low-income people. So if the government bought some of these vehicles at above-market prices, it would transfer a little purchasing power to the poor.” This assumes that low-income families can afford to buy a car, new or used, even with government aid, and that they can afford new-car payments. What about those looking for cars in the $1,000-$3,500 range? Fewer used cars means higher used-car prices. The used-car industry, reported the Associated Press in August, was already suffering from “[f]luctuations in gas prices and higher prices at car auctions.” Now, in an economy in which people tend to hold on to their cars even longer, used-car dealerships are having a difficult time replacing their inventory—let alone selling it at prices that poorer folks can afford.
Automotive recyclers are also experiencing the drawbacks of this program. By law, the engines of the “clunkers” must be destroyed with liquid glass, and the drive train has to be disassembled before recyclers can sell it. Those two components, according to an MSNBC report, are usually responsible for about 60 percent of the profit gleaned from a recycled car. If the recyclers don’t have time to disassemble the drive train, that’s a lot of profit gone. And time is one thing these businesses are sorely lacking. The Automotive Recyclers Association has sought an extension of the January deadline for crushing, claiming that larger-than-expected participation in the program, as well as dealer delays in getting clunkers to salvage yards, are making it impossible to get all of the valuable parts out of the cars before they have to be crushed.
My cousin, who operates his family’s auto and truck parts business in southern Alabama, is seeing firsthand the effects of Cash for Clunkers. He employs nine people but could use one full-time employee just to file the mountains of required paperwork for CARS. He used to get around $15 per pound for the scrap metal from a crushed car; in this flooded market, he now gets about $5 per pound. He says that many people are already defaulting on their payments because they bought cars they really couldn’t afford, and that small dealerships operating on a month-to-month basis have been unable to hold out for the government’s promised rebate checks.
Did anyone benefit from Cash for Clunkers? Well, the program had to hire temporary “agents,” who pop into dealerships and salvage yards around the country making sure that all those behemoths are being properly disposed of. So yes, there were some jobs created.
Cash for Clunkers was not the result of a serious, studied look at what might be done to help the American automotive industry or the economy. And it has hurt the very people Barack Obama claimed, in his campaign, to want to help—small-business owners and everyday Americans.
Leave a Reply