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Cash for Clunkers: Good for dealers, automakers, bad for taxpayers

Car sales and research site estimated today that each new car sold under the Cash for Clunkers government subsidy program cost the American taxpayers more than $24,000.

Edmunds estimated that 82 percent of vehicle sales during the program would have happened anyway (then or at some point in the near future), so the program only enticed about 18 percent of the buyers who participated in the program, which moved 690,000 new vehicles off the lots of very relieved dealers.

This means that the much-touted government program only got 125,000 new vehicles on the road than already would have gotten there without a government subsidy.

Edmunds' math goes like this: 690,000 vehicles sold with the $4,500 subsidy during the program divided by 125,000 new vehicles equals more than $24,000 for each new vehicle, or the amount ponied up by the American taxpayer.

So, if you bought a new vehicle during the program, go to each of your neighbors and thank them. Even though they didn't know they were helping you.

-- Frank Ahrens
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By Frank Ahrens  |  October 28, 2009; 3:34 PM ET
Categories:  The Ticker  | Tags: Edmunds, cash for clunkers  
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How do you absolutely know that 690,000 - 125,000 vehicles would have been sold within that 2~3 month timespan? How do you know that people would take on the extra debt of a new vehicle for their less than 25 years old vehicle? These statistics are fatally flawed.

Posted by: liveride | October 28, 2009 4:14 PM | Report abuse

I used the cash for clunkers program and if not for it I may have lost my job and the only means of transportaion I had. I worked out fine for me and I realize that it would cost the taxpayers, so I have never used any goverment help before so I took full advantage of it. It would have come out of my check anyway. so thanks to all!!!!!

Posted by: Harley18 | October 28, 2009 4:18 PM | Report abuse

Edmunds is looking at the matter too narrowly and statically, rather than dynamically. What Edmunds misses is that the clunkers are off the roads entirely, not resold to other buyers. To determine the real economic effect of the program, you would have to add in the expected benefit from better fuel economy overall with the clunkers off the road and not resold, and determine how much foreign oil is being saved by that. That is a public benefit that can be economically quantified.

Further, there is the direct stimulus benefit to buying the cars now, rather than later. Edmunds seems to ignore that too. There was a clear benefit to the economy in keeping the auto factories going during this recession. I read that a Hyundai plant in Alabama went from a part time back to full time employment for its workers because of the added demand. That means that there was less unemployment (less unemployment compensation), and less fall out from unemployment in the community - people spending money on goods and services that they wouldn't without the steady income. All that has to be considered before a final judgment is made on purely economic grounds.

Posted by: snsb18 | October 28, 2009 4:19 PM | Report abuse

That program was just a handout from the government to the middle class. Poor people don't have cars to begin with. Obama bought some votes, the middle class is happy, the country is deeper in debt, and the poor got nothing.

Yay for politics!

Posted by: mr_bill_10 | October 28, 2009 4:40 PM | Report abuse

Actually, if Edmunds' numbers are close to being accurate, the cost was a lot more than $24,000 per car. Considering that the funds simply added to the Federal budget deficit, this was borrowed money, and taxpayers will be saddled with paying interest on the debt for years into the future, until and unless we ever turn the corner on deficits and start paying down the debt.

But even if Edmunds numbers are off, this was nothing but a "feel-good" program to help get cars off dealers' lots. Great PR, little practical impact on anything that really matters.

Posted by: oldguy2 | October 28, 2009 5:21 PM | Report abuse

My own take on this, from the inception of the program, is that those of us who made socially responsible car purchases from the start are now subsidizing new cars bought by irresponsible people. Those who had huge gas guzzler SUVs get some of my tax dollars to buy something more fuel efficient? -- I don't care if it was $24 or $24,000; I don't like it. Why not fine the gas guzzling drivers, and use the money to reward those of us who get at least 40 mpg?

Posted by: Bookbinder | October 28, 2009 5:44 PM | Report abuse

For many people, the fuel economy increase isn't tremendously better than what they had before, and it's been shown that many people will drive a new, more fuel efficient vehicle more than they would have driven the older less efficient vehcile; meaning that buyers who turned in their "clunkers" will drive more, negating some if not much of the fuel savings.

Those who had vehicles that got "good" mileage from their otherwise clunkers weren't able to turn in their vehicles, old vehicles (not just older, but old) and are subsidizing those who bought less fuel efficient, but relatively new vehicles.

Somehow, while the program was good for those that were able to quickly participate, others (who, because of the current economic situation may not have qualified for a new car loan, are now subsidizing the program via tax) were unable to take part in the program.

What you had was a good program for dealers who had a lot of cars on their lots, and for people who had less sensitible vehicles than that wanted but who could afford to buy a new car. And, I agree that many of the people of the people who took advantage of the clunker program would have bought vehicles in the near term anyway; what this program did was accelerate their purchasing and caused a ripple effect that takes those people out of the buying market for the next year, year and a half or so; that is, instead of prorating sales over the upcoming months, people bought now and won't buy in the future, meaning that dealer sales will be down in upcoming months compared to what they otherwise would be.

In a similar vein, is the $8,000 housing program that significant that people wouldn't be buying houses unless the government paid them $8,000? Are you saying that people who are financing a 30 year loan would not buy a new house unless they received a subsidy? Just wondering?

Posted by: Dungarees | October 28, 2009 6:04 PM | Report abuse

One question that has not been is how much of a marginal difference in fuel savings has been gained for the $3 billion cost of the program. At current retail cost, that would buy about 1 billion gallons of regular.

Also, what are the costs in lost sales of spare parts and repair labor?

One other cost is the marginal increase in used car prices, as cars that would have been on the used car market have been destroyed.

This program should be recognized as an income transfer program, and should be evaluated with that in mind.

Posted by: GRILLADES | October 28, 2009 6:28 PM | Report abuse

Edmunds does not count the vehicles that sold to people who came looking for a clunker trade, but did not qualify.

The program was a massive promotion to non-subsidized car sales, and that is a very good thing indeed for our economy.

How Edmunds explains away the $4000 factor to "cars that would have been sold anyway" is something I'd like to know. It doesn't seem realistic to claim

just sayin'

Posted by: onestring | October 28, 2009 7:20 PM | Report abuse

Two endless foreign occupations bad for U.S. taxpayers and military families and displaced and dead Iraqis and Afghanis.

Posted by: bdunn1 | October 28, 2009 7:56 PM | Report abuse

This some pretty specious data. One thing the data don't measure is how many people purchased a more expensive car because of the cash for clunkers program. Some people, for example, might have been able to purchase another gas guzzler without clunker money but instead purchased a hybrid using clunker money.

The Edmunds data also does not measure the extent to which increased car advertising drove interest in new cars and resulted in non-clunker sales.

We'll have to wait a few months to see whether Edmunds reached the correct conclusion. If new car sales are unexpectedly low, even taking into account the economy, then Edmunds would have a stronger case.

Posted by: editor14 | October 28, 2009 8:30 PM | Report abuse

Rather than extrapolating out from historical data; it would be interesting to see how a representative sample of actual purchasers responded to questions such as:

1. Did the program have an impact on when you purchased your vehicle? If so, by how many months?

2. Did the program have any impact on the kind of car that you purchased?

The Edmunds analysis seems to contain a number of counterfactuals. Given the current state of the economy where economic models have been thrown for a loop, relying on historical data can be especially tricky.

In terms of overall economic impact too -- did the infusion of purchases forestall job loses (which would hit taxpayers on the other side through social service costs)?

There also is a long-term benefit to taxpayers and consumers in having improvements in having improved fuel efficiency. The benefits are likely marginal in the context of the Clunkers program, but they're still part of the total cost-benefit of the program.

In the big scheme of things the program was likely at worst a wash. In time I suspect they'll find that there was a marginal benefit.

Posted by: JPRS | October 28, 2009 9:58 PM | Report abuse

This is something like the government estimates on tax increases or decreases, which are normally done via a static formula that doesn't even give a nod towards the behavior and- more important- behavioral changes caused by government policy.

This leads to the conclusion that must be government run.

Okay- I was trying to use the same kind of arbitrary, static thinking... see how it works?

Posted by: Labrador1 | October 28, 2009 10:09 PM | Report abuse

I find it hard to believe that 82 percent of the people participating in the program would have bought a new car anyway, given the qualifying restrictions. Although there were restrictions, basically your vehicle had to be worth less than $4500 for it to make sense to participate. Given the restrictions, how many people with cars worth less than this amount would have been in the new car market under these stress economic times? I don't think it would have been 82 percent of the participants. I seriously doubt it would have been that high under the best of economic times.
Of course, this doesn't mean the program was wise, or even successful, but I think even a cursory view of the program would dispel the notion that each $4,500 credit cost over $24,000. Each credit probably did cost more than $4,500 when everything is included, but $24.000 is ridiculous.

Posted by: hodging | October 29, 2009 11:11 AM | Report abuse

Putting out such obviously flawed stories makes me question everything and anything that Edmunds publishes. If the rebate is 4.5K max but the total cost per car is 24K, you have a 400% overhead. Was this program executed through Halliburton or one of its' subsidiaries?

And how could they possibly say that most of these sales would have occurred anyway? We were on the verge of a Depression - nobody was buying anything.

Such back of the envelope statistics are utter crap.

Posted by: Fiscal-Conservative | October 29, 2009 2:30 PM | Report abuse

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