I am really struggling to figure out exactly what the objective of "Cash for Clunkers" was and whether its goals were accomplished. Let's reflect on the following:
It will spur auto sales:
Exactly whose sales? Some of the domestic manufacturers did sell quite a few cars under the program, but data that I have seen suggests that the imports (and by imports I mean cars not manufactured in North America) were the majority of sales. Did that help spur domestic auto sales? I wonder how the UAW worker whose factory was closed feels about his $4,500 of taxpayer money being sent to employ someone not in America.
It will help the economy:
Actually, I think it will hurt it. Based upon the above, the consumers who bought these foreign cars did so in order to take advantage of the program. It definitely brought people into dealerships. But now, those same consumers have car payments (probably with a foreign acceptance company) that they did not have to make before, and between the car payment and increased insurance premium, I would suggest $4,500 of this consumer's discretionary income is now OUT of the economy for the next 48 to 60 months. If it is true that 700,000 vehicles were sold, that means up to $350 million A MONTH of discretionary spending just went away for the next 48 to 60 months.
It will reduce emissions:
It probably will, but not enough. The trade vehicle was based upon the EPA fuel economy it got when the vehicle was new. That's a bad concept. If the vehicle got what it did when it was new, the consumer probably wouldn't want to trade it. So a 200,000-mile car with two blown cylinders that looks like a chimney driving down the street that currently gets 5 mpg didn't qualify if it got 25 mpg when it was new and you wanted to replace it with a similar vehicle.
The following has been on the Internet:
A vehicle at 15 mpg and 12,000 miles per year uses 800 gallons a year of gasoline. A vehicle at 25 mpg and 12,000 miles per year uses 480 gallons a year. So, the average "Cash for Clunkers" transaction will reduce U.S. gasoline consumption by 320 gallons per year. They claim 700,000 vehicles - so that's 224 million gallons/year. That equates to a bit over 11 million barrels of oil. Eleven million barrels of oil costs about $748 million dollars at $68/bbl. So, we are spending $3 billion (that we don't have) to save $748 million a year? Remember, oil was as low as $40/bbl earlier in the year, and at these prices, the savings would be almost in half.
The real question will be if we simply stole future sales, and we will know that very soon. Hopefully the dealers (who have only received 22 percent of the payments to date) will still be around to sell cars if the customers come.
As every reader of this magazine knows, the bigger issue is that we need to fix the credit problem. Free up credit and fleet and rental companies will come and buy cars in large quantities. That is a true stimulus package.
President, Franchise Services North America
President, American Car Rental Association
Originally posted on Business Fleet