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New Study Says Cash for Clunkers Was … a Clunker

Posted By Nicolas Loris On September 3, 2010 @ 1:00 pm In Economics | Comments Disabled

The White House hailed last year’s “cash for clunkers” program as a successful government initiative that stimulated the economy, particularly the ailing auto industry. It provided $3,500–$4,500 rebates to consumers who purchase more fuel efficient cars and trade in their old vehicles, which dealerships then destroyed.

President Obama’s economic team said cash for clunkers lured consumers [1] who would have bought a new car two to three years in the future into the immediate market. However, a new study from economists Amir Sufi of the University of Chicago and Atif Mian of University of California-Berkeley suggests otherwise. According to NPR [2]:

The government’s “cash for clunkers” program boosted auto sales by 360,000 during the two months it was in place, according to a new study [3]. But in the seven months that followed, sales were down by 360,000 compared to what they would have been without the program, the study found.

The implication: The program didn’t bring new buyers into the market. But it encouraged people who would have bought a car anyway to make their purchase a few months sooner.

Although it’s impossible to know what the economy would have done absent cash-for-clunkers, the authors of the study attempted to do so by analyzing “parts of the U.S. where, for one reason or another, there were almost no clunkers on the road when the program took effect. By comparing sales in those areas to sales in more clunker-rich parts of the country, they were able to estimate the program’s effects.”

New auto sales reports show that August 2010 sales are down 21 percent from August 2009, which included the cash-for-clunkers program. For those who couldn’t afford to take advantage of the taxpayer-funded subsidy for the purchase of a new vehicle, the news is also grim. The reduction in the supply of used cars—partly from destruction of traded-in vehicles and partly because new car sales are down—has driven up used car prices [4]. The prices of some models have risen as much as 30 percent, and even the smaller models are up 10 percent. So by what measure can this program be called a success?


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2010/09/03/new-study-says-cash-for-clunkers-was-%e2%80%a6-a-clunker/

URLs in this post:

[1] economic team said cash for clunkers lured consumers: http://www.whitehouse.gov/blog/2010/04/05/did-cash-clunkers-work-intended

[2] According to NPR: http://www.npr.org/blogs/money/2010/09/02/129608251/cash-for-clunkers

[3] new study: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1670759

[4] has driven up used car prices: http://www.610wiod.com/cc-common/news/sections/newsarticle.html?feed=122821&article=7510712

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