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Cash for Clunkers by the Numbers

Posted By Nicolas Loris On August 4, 2009 @ 5:31 pm In Economics | Comments Disabled

Ken Belson of the New York Times provides some interesting data points on the cash for clunkers program [1]:

The “cash for clunkers” program introduced last week appears to have been a success, at least based on the tens of thousands of consumers who streamed into their local car dealers to swap their beaters for new, more fuel-efficient replacements.

But there is more to the numbers than the headlines. According to a survey of car dealerships and 2,200 consumers by CNW Research, the average fuel economy of vehicles traded in last week was 16.3 miles per than the 18 m.p.g. needed to qualify for a government rebate of $3,500.

The relatively small differential suggests that consumers have not been turning in the oldest, dirtiest and least fuel-efficient cars, but instead have been getting rid of their second and third cars, according to Art Spinella, who ran the survey.

“These are third cars used for kids in school,” Mr. Spinella said.

The vehicles that consumers bought with their credits had average fuel efficiency ratings of 24.8 miles a gallon, he said.

Lawmakers hoped the “cash for clunkers” program, formally known as the Car Allowance Rebate System, would reduce America’s dependence on imported oil. But the early results of the program suggest that may not happen. The vehicles turned in were driven about 6,000 miles a year, he said. If the new vehicles are driven about 12,000 miles a year, the rough annual average, then consumers will actually use more fuel, not less.

“The energy independence argument did not ring true, at least so far,” Mr. Spinella said.

He added that the average annual income of those who bought cars with their rebates was $57,700, just under the $61,000 for all new car buyers these days. That suggests that consumers with the lowest incomes who, in theory, need the rebates most, are not benefiting from the program.

One of the problems, Mr. Spinella said, is that even a $4,500 rebate may not be enough to persuade consumers to turn in their cars, particularly if they are unable to borrow from cautious auto dealers.

“Some of the folks who drive a beater all the time are unlikely to get a new car loan,” he said. “That’s one of the problems with the program.”


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[1] on the cash for clunkers program: http://wheels.blogs.nytimes.com/2009/08/04/cash-for-clunkers-by-the-numbers/

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