Is Cash for Clunkers a Success?

By now, you may already love or hate the Car Allowance Rebate System (CARS), more commonly known as the Cash for Clunkers program. Used car dealers, Republican legislators and our YouTube viewers have panned the program, but you can’t deny the popularity of the initiative thus far. Many car dealers contend that the destruction of perfectly usable cars will drive up prices in the used auto market, as supply and demand issues arise. On our Cash for Clunkers YouTube post, Cambridge received several impassioned responses about the program, some unsuitable for this post. Among those that we can reproduce is this message from an incredulous opponent of the program.

So, we are supposed to destroy still-running vehicles to get barely a few thousand to cover the cost of a new car, only for it to, within a few years, be in just as bad a shape as the one we had before?

However you may feel about the program, before its funding ran low, it was estimated that Cash for Clunkers had helped the auto industry sell an estimated 160,000 new cars.

The global auto industry is predicated on worldwide demand for 100 million units per year. Since the economic downturn, which not only affects the United States but other countries as well, global demand has fallen to just above 50 million units per year. In July alone, the Cash for Clunkers program contributed to the sale of 997,824 light utility vehicles, down from last year’s sales of 1,136,176 units but well ahead of what had been some fairly dismal predictions. Some Americans have decried the increased sales, since many of the cars sold under the program are foreign, but we need to remember that we are no longer the only economy on the block. The United States is just a piece of the growing global economy. With that in mind, the program has proven to be beneficial; however, it is difficult to say whether the increase in sales will last when Cash for Clunkers ends.

It’s important to understand that the initial purpose of the program was reducing carbon pollution and the nation’s dependence on foreign oil. An ancillary benefit of Cash for Clunkers was boosting the struggling auto industry. For now, the spike in car sales has overshadowed the initial purpose, but there will be a benefit to the environment. Not surprisingly, the size of that benefit is up for debate. Analysts for Reuters determined that the $1 billion program will reduce America’s daily oil consumption by 0.05%, or 72,000,000 gallons of gas, annually. The increased fuel efficiency of the automobiles purchased for the program will result in a reduction of America’s carbon dioxide output by 700,000 tons. Granted, the United States output per hour is 728,000 tons, but every little bit helps. The infusion of an additional $2 billion dollars will triple the estimated reduction.

The incentives from the government, as well as the matching offers made by many car manufacturers, have obviously motivated many individuals to take advantage of the Cash for Clunkers program. However, these are still unsure times in our country. Job losses eased to 371,000 in July, but that figure was still slightly more than the 350,000 positions economists had predicted would be lost during the month. And though this latest statistic represents an improvement over previous monthly losses, which had approached the half-million mark, the economy is still hemorrhaging jobs at an unsettling rate. Furthermore, true unemployment figures or still hard to come by as the administration cannot adequately account for those who have exhausted their unemployment funds. Until the private sector begins hiring and people get a sense of security, it’s unlikely that our consumer spending-dependent economy will begin to heal. Therefore, expecting Cash for Clunkers to be a long-term fix is simply unreasonable. At best, the economy will benefit in the short term, but we have much more to do before he can say the economy has recovered.

For more information, or to speak with a certified credit counselor please contact Cambridge Credit Counseling at 800-897-2200 or www.cambridgecredit.org.

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2 thoughts on “Is Cash for Clunkers a Success?

  1. True; however, each of the foreign automakers do employ Americans. I think that as more data becomes available both sides of the debate will have plenty of information to base their position. It is early to tell if the program will meet all of the intended purposes, but of all the Administration’s efforts this one has received the most notoriety.

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