Cash for Clunkers Comes Crashing Down

Posted October 2nd, 2009 at 2.39pm in Enterprise and Free Markets.

What goes up must fall just as hard. Case in point: cash for clunkers:

The dramatic decline in sales reported Thursday by the Big Three automakers suggested the extent to which the stimulus act has propped up the economy. The government’s wildly popular “Cash for Clunkers” program drove consumer spending to its highest level in eight years in August. But after it ended, so did the growth in auto sales.

General Motors’ sales plunged 36 percent in September compared with August. Ford plummeted 37 percent. Chrysler dove 33 percent.

Cash for clunkers “was a one-time boost of sales followed by a crater,” said Ben Herzon, an economist at Macroeconomic Advisers. The firm forecast that the program was likely to have no effect as a stimulant for national economic output.”

“It was disappointing. I expected the month to be a bit stronger, but it just wasn’t,” said Mark LaNeve, G.M.’s vice president of United States sales.

Politicians initially lauded cash for clunkers as a successful program that stimulated the economy, particularly the ailing auto industry, and the program also inspired consumers to buy more fuel efficient vehicles at the expense of completely destroying their old ones. Nancy Gibbs sums it up well in Time:

“What does it tell us about our national character when the most popular government program in years is an economically dubious, environmentally negligible, politically lazy handout from 99% of the population to the other 1%, all aimed at reviving the economy from its vegetative state?”

If you subsidize anything enough, people will buy it. Industry incentives are increasing but nowhere near the level of the $3,500-$4,500 taxpayer-funded “incentives.” Worse, cash for clunkers could have serious adverse consequences for consumers’ behavior when it comes to purchasing goods. If consumers come to expect a handout from the government, they may hold off on buying a new product.

It’s difficult to say when the cash for clunkers hangover will subside, but head of Chrysler’s sales organization Peter Fong thinks that “the remainder of 2009 will continue to be a challenge for the U.S. automotive market.”

So much for that talk of a successful government program.

Author: Nick Loris
Interact: Sphere
Share This

14 Comments

October 2, 2009 Bill, San Antonio TX writes:

Why does this result surprise anyone?
Another 3 Billion ($3,000,000,000) poof….

Until these Keynesians admit their strategy does not and will not work, the economy (jobs) is going to stagnate and (lack of consumer spending BECAUSE of lack of jobs) is going to stagnate. Wait until inflation starts.

So what are all these brilliant economists telling the President? Let’s spend some more!
They need to go back wherever they came from and stay there and “theorize”; at least they will not create any more damage.

In the meanwhile, let’s keep taxing every possible thing, so we can take even more money away from consumers they do not have to spend in the first place!!!

The entire administration would be fired for incompetence if they were employed in the private sector.

October 2, 2009 J.C. Hughes, Texas writes:

The reason cash for clunkers failed is because it was stupid. It was one dumb economic adviser that came up with this crazy scheme.

October 2, 2009 Minorkle, DC writes:

One other unintended consequence is the damage that has been done to the poor. Perfectly good cars that they need were destroyed in the name of the environment. The benefit to the environment is negligible but the added burden to the poor when they can’t find an affordable car is real.

October 2, 2009 Fred Paxson, Fort Worth TX writes:

Did these whiz kid genius czars around Mr. Obama and Speaker Pelosi ever think of giving or selling at reduced prices those million “clunkers” to deserving poor or unemployed Americans for transportation to work, school, job-seeking or family errands? Of course not! Those million plus automobiles (including Rolls Royces, Mercedes, etc..) were destroyed, driving up the price of used cars and helping no one! Not only is our government unresponsive and elitist, they’re delusional and completely out-of-touch with what’s going on in flyover country.
Vote out EVERY incumbent in 2010!!

October 2, 2009 Steve, Pennsylvania writes:

Stupid is as stupid does.

A five year old could have predicted this.
And BM’s VP of Sales could not?

If they bozos don’t allow the market to function, we are doomed until the next election.

October 2, 2009 Roger D Henderson Nv writes:

Didn’t the GM CEO just announce something about starting some 2nd or 3rd shifts? But then Obama did hire him.

October 3, 2009 More new taxes coming - Page 2 - theBubbler writes:

[...] me that you find favor with government freebie programs. Here ya go. No slant. Just the facts. Cash for Clunkers Comes Crashing Down The Foundry __________________ I don’t need an [...]

October 3, 2009 Dave H writes:

Cash for Clunkers will be fondly remembered by the Left as a tremendous success for the environment by removing thousands of nasty old polluting cars from circulation. That it failed economically hardly matters to people who don’t understand economics. That it raises used car prices for poor people is beyond comprehension. (Seriously, make that argument to a liberal and watch the blank stare you get.)

October 4, 2009 Tom Nally, New Orleans writes:

“The firm forecast that the program was likely to have no effect as a stimulant for national economic output.”

How could it have a stimulating effect? It was nothing but another example of Bastiat’s broken window fallacy.

Every single Cash For Clunkers transaction cause a net destruction of wealth. The wealth never to be recovered was the market value of the clunker which was destroyed. You cannot make yourself wealthier by flowing $100 bills through the office shredder. In essence, that’s what Cash For Clunkers did.

And for this act of genius, I’m sure our astute Congressmen were popping the corks off the most expensive champagne to be had in Washington D.C.

—Tom Nally, New Orleans

October 4, 2009 Bobbie Jay writes:

It’s because Obama does not think beyond his words of ideas nor acknowledges anybody who does. He was well informed of the potential consequences of this idea and here we are.

Thank You to Ford, for not weakening to the hand of government!

October 4, 2009 jadedfellow aka rene' oregon writes:

It was one of the most absurd ideas ever to come out of Washington. I don’t know if this is true or not but I read somewhere that we just spent 3 billion to save 300 hundred thousand dollars in gas over the next 5 years. Even if it saved 3 million dollars it should go down as the worst investment in American history. Man I thought I made bad investments. After this I consider myself a financial genius; at least I don’t cap my trades with other people’s money.

October 4, 2009 Cash For Clunkers is an Economic Clunker | The Patriot's Mind writes:

[...] 3 auto makers in the US posted record sales drops in the month of September to the tune of 33%-37%. Heritage explains below… The dramatic decline in sales reported Thursday by the Big Three automakers suggested the [...]

October 5, 2009 Freedomof Speech TX writes:

In the not-to-distant future, we’ll all be driving “clunkers” because most of us will not have any money to buy anything new.

We can “evolve” like the former bastions of marxism, East Germany and Soviet Union, and have only one fuel efficient model!

Of course, mercedes and volvos will still be available to high level party members. So, sign up now and begin your seniority!

October 21, 2009 Cash for Clunkers: The Bus Version | Conservative Principles Now writes:

[...] And like cash for clunkers, it will most likely do neither. Although Secretary of Transportation Ray LaHood believes “investing in green transportation not only helps the planet, but creates jobs and strengthens our economy”, one should take a look at how the cash for clunkers program fared. Yes, consumers took advantage of the taxpayer-funded handout to buy a new car while completely destroying their old one, but after the subsidy program ended so too did car sales. Sales in September for Chrysler, Ford and GM plummeted. [...]

The Heritage Foundation - Leadership for America

The Foundry