Is there evidence that this US programme has been a failure?
I was asked by a reader recently about my claim that the Cash for Clunkers program was a failure. He said, and I quote, “And your proof is…?” Here is my response:
My conclusion that the Cash for Clunkers program was a failure is based on three factors.
One, it did not have the intended consequences on the environment; for those folks who purchased a marginally more fuel efficient car now, rather than later, the added fuel efficiency was likely more than offset by the pollution generated by destroying the old car, and by the loss in additional fuel efficiency they would have enjoyed had they waited a year or two to replace their current vehicle with an even later, even more fuel efficient model year.
Two, the costs of the program, which are much greater than the $4,500 rebate, far exceed any benefits generated. Abrams and Parsons in the Economists’ Voice estimate that the costs of the program exceeded the benefits by about $2000 per car. A recent study by Edmunds.com put the cost of the program at $24,000 per car once the cars purchases that would have occurred during that period anyway are deducted (http://content.usatoday.com/communities/driveon/post/2009/10/620000657/1). I think the real cost is somewhere in-between, but closer to $24,000 than $2,000. 
The true costs of the program include but are not limited to the additional paperwork and private and public workers needed to administer the program, the interest costs to dealerships of financing the rebate program while awaiting the government checks (some less capitalized dealerships actually went out of business because of the program), the costs of destroying the old vehicles, and the cost of lives lost and injuries sustained in accidents in smaller, less safe but more fuel efficient cars, just to mention a few.
Last, this “injection” into the economy — which, in reality, is the blatant substitution of private consumption choices with public policy, and an affront to our economic freedom — costs the economy untold sums by putting off the inevitable failure of automotive companies that fail to produce cars the population values sufficiently to keep the auto companies in business without being propped up by the government.
Case in point: GM’s plunge of 45% and Chrysler’s fall of 43% in the months following the rebate program; Honda and Toyota also reported double-digit slides, while Kia and Hyundai had double-digit increases.
New car sales fell in September as the predicted post-“cash for clunkers” slump dragged the U.S. market down to its lowest levels in seven months.
I wish it weren’t so, but I’m afraid that good business is not the strong suit of our policymakers.
By Sherry Jarrell
there are probably more stringent safety standards for an electric toaster than for most, if not all, financial products!
Brought up on a farm, working as a management consultant and returning to farming, Guy Watson brought something from outside and applied it to a “field” in which he had a passion.
Learning from Dogs 