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Cash for Clunkers -- Was It Worth It

Written by: Dr. Rick Johnson

Article Overview: The cash for clunkers program is over; at least for now. My initial thought was --- what about the cash for doors, refrigerators, guns, forklifts --- you name it? Why can't every business get a boost? Of course, I am being facetious simply because I believe we were only kidding ourselves by thinking the Government can actually "create demand". That is simply not true. Only the free market can create demand.

Cash for Clunkers -- Was It Worth It

The cash for clunkers program is over; at least for now. My initial thought was --- what about the cash for doors, refrigerators, guns, forklifts --- you name it? Why can't every business get a boost? Of course, I am being facetious simply because I believe we were only kidding ourselves by thinking the Government can actually "create demand". That is simply not true. Only the free market can create demand. But ---- The Program Will Help the Environment

Really, I don't think so. But then, maybe I am wrong. After all, 700,000 clunkers were taken off the road due to this program. These clunkers were replaced by far more fuel efficient cars. In fact, wasn't that one of the programs marketing tag lines?

"This program will help the environment and cut down on our need for foreign oil."

We spent as taxpayers almost $3 billion dollars in support of this program to help the automotive industry and save on oil consumption. (Even though some dealers are still waiting for their money)

Statistics tell us that the average fuel economy of the vehicles traded in was 15.8 miles per gallon and the average fuel economy of vehicles purchased is 24.9 mpg. That represents a 58% improvement in mpg.

Other interesting statistics reveal that Toyota Corolla, Honda Civic, Ford Focus and Hyundai Elantra were the top five cars purchased under this program. Only Ford an Amercian Owned Manufacturer had a vehicle in the top ten purchased list. Overall, Ford captured 14.4% of this contrived demand while General Motors got 17.6% and Toyota was the leader with 19.4% according to C.A.R.S. Program Statistics. Ironically Chrysler only captured 6.6% behind Honda, Nissan & Hyundai and just barely beating out KIA who came in at 4.3%.

According to many the program worked far better than anyone anticipated at moving consumers out of old, dirty trucks and SUVs and into new more fuel-efficient cars.

Cars purchased under the program are, on average, 19% above the average fuel economy of all new cars currently available, and 59% above the average fuel economy of cars that were traded in. This means the program raised the average fuel economy of the fleet, while getting the dirtiest and most polluting vehicles off the road.

A Closer Look is Always Warranted

However, let's take a closer look at those statistics. 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 reduced US gasoline consumption by 320 gallons per year.

At 700,000 vehicles - that's 224 million gallons/year.

That equates to a bit over five million barrels of oil. Five million barrels of oil is about ¼ of one day's US consumption. And, five million barrels of oil costs about $350 million dollars at $70/bbl.

Taxpayers contributed to spending $3 billion to save $350 million. How good a deal is that???

But ---- Don't Forget - People Bought 700,000 New Cars - Let's Get real

There is no arguing that point. In fact many politicians will quickly tell you that the automotive manufacturers called back many workers that were laid off due to this spike in sales.

Let's get real. I said in the beginning and I'll repeat it now. "Only the Free Market can create demand." The only thing the "Cash for Clunkers" program did in relationship to market demand was to move up the purchase of vehicles that would have occurred eventually anyway. The people that are driving "Clunkers" are driving those vehicles for many different reasons. It may be the only type of vehicle they can afford. It may be a student that just needs transportation or it could just be a second vehicle used by an entire family. Those people that are driving those vehicles because they can't afford a new car are not going to go out and put themselves in debt due to the "Cash for Clunkers" program. Those that can afford it may decide to purchase a new car sooner but then they would have purchased one anyway sooner or later without the clunker program.

A Downside to the Program

Many people believe as I do that there definitely was a downside to the program. Think about the garages that employ auto mechanics that keep those clunkers running until the owner can afford to buy a new car. Their business has to suffer to some degree with 700,000 potential clunkers no longer going into the shop to keep them running. And, what about those individuals that can't afford a new car that depend on the purchase of a clunker. Those clunkers that were traded in were all destroyed. That affects the supply side of the equation by reducing it which can have an impact on the price of those clunkers that are available for sale. Lastly, somebody forgot to tell those 700,000 people that got that Clunker Rebate that they were going to be taxed on that rebate as income on next years tax return

So........... Did the "Cash for Clunkers" program work? Just look at the September Sales report for General Motors and Chrysler. Not surprisingly GM sales for September declined by 45% and Chrysler's sales declined by 41%; Ford's sales only declined by 5%. Personally I believe that the "Clunker" program was a big success for the politicians but a Dismal Failure for free enterprise and will have zero impact on our economic growth in thee long run.

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Article Tags: government programs socialism



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