I previously went over cash for clunkers when it first came out. The point of that post was to detail how the program was supposed to work. Since then I have refrained from discussing the program until the results were posted. A lot of bloggers chastised the program heavily and I disagreed with them. So, I have anxiously awaited the results to see how everything panned out.
As with all initiatives, both public and private, it is easy to find what could have done better. And that is important! But we often falter in giving programs credit where credit is due. So, on to the hard numbers… how did the program fair?
Results
- Total Cars “Clunked”: 690,114
- Total Money Used: $2.9 Billion
- Top 3 Benefactors (by Percentage of Clunkers Sold): Toyota 19.4%, GM 17.6%, Ford 14.4%
- Top 5 Car Models: Toyota Corolla, Honda Civic, Ford Escape, Nissan Versa, and Hyundai Elantra
- Top 3 Clunkers: Ford Explorer, Ford F-150, and Dodge Grand Caravan
- Vehicle Type Clunked: 84% were trucks, SUVs, or vans
- Vehicle Type Purchased: 59% were passenger cars
- Average MPG of Clunkers: 15.8
- Average MPG of New Purchases: 24.9
- Fuel Economy Improvement: 58% (19% improvement over the average vehicle on the market)
- Economic Growth: 0.3% to 0.4% in the 3rd Quarter
- Jobs Potentially Saved: 21,000
My Analysis
Right now the news is full of 15 second clips that show car dealers with stacks of paper on their desks. They are ecstatic at all of the car sales but very disappointed with the paperwork and timeliness of payments. The lots are empty and they are even selling the cars they drive personally (a perk of working for the auto industry, of course).
So, my first question is… what did people expect? This isn’t a question of government vs private. This is a question of having to process over 690,000 applications worth approximately $3 billion in a short period of time. If they processed them extremely fast they would open themselves up to potential fraud. Each case of fraud would be one less possible car sold. So this is a classic case of “Damned if you, damned if you don’t.”
The car dealers can cry all they want. You know who isn’t crying (and you won’t see this on the news)? The car manufacturers, the auto suppliers, the people who are employed because of the car industry, and the rest of the economy that watches the consumer confidence ratings. Some car dealers were releasing estimates that 80% of their sales were under the clunker bill. The car manufacturers got a huge influx of cash to re-tool as necessary and keep themselves afloat through the recession. They depleted their inventories so that they can keep their production lines running and thus keep people working. This will cascade into the suppliers and even other industries.
Because people are staying employed, this should alleviate the unemployment foreclosure wave about to hit. They will also stay in the pool of people able to consume. Remember, at this time our economy is consumption driven. When people see a successful program like this they also see that a lot of people are spending money. This inflates consumer confidence, too.
And anyways, $3 billion is less than 0.5% of the Defense Budget ;) People complain about programs that they haven’t given a chance and wrote off from the start. And then when the program is over they expect instant results. Macroeconomics is slow moving… in 6 months to 1 year we can revisit this topic and see if it provided any kick start to the automobile industry and thus the economy.
I'm MLR. After graduating from college debt free, I decided to write a blog encouraging people to adapt responsible and sensible personal finance rules.
August 27th, 2009 at 9:09 am |
How is it that GM is the second top benefactor when none of their cars were the top 5? I guess I don’t understand the data.
I am still wondering if this program just pulled all the sales into one time period and we will see a huge drop off in car sales in the next few months. Since everyone who was thinking about buying a car would have done so will take while for the demand to increase again.
Secondly I think we have also destroyed the market to buy clunkers because by law they had to be destroyed, won’t this create an artificial scarcity in the market for cars worth less than $3000-4500?
I guess my issue isn’t an economic one but a moral one, the government still had to take that 3B from tax payers, by force, and give it away to others.
Jason´s last blog ..100+ Frugal Money Saving Tips
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MyLifeROI Reply:
August 27th, 2009 at 11:20 am |
@Jason,
Take a step back and the data will make sense. It just means GM sold the second most cars across a wider variety of cars. No one car of theirs was sold in the top 5. On the flip side, Toyota sold a lot of corollas and less of their other models. Get it?
Even if they did pull all of the sales into one time period (which we will be able to look at and review in 1 year as I said), that isn’t a bad thing. Selling 700,000 cars over 6 months wouldn’t have provided all of those benefits I listed that came with selling 700,000 cars in one month.
Will it create a scarcity? You are assuming that all of the cars were actually WORTH $3,000-4,500. They may have been worth $500. Each of those numbers are unfounded. You are also assuming people would have sold those cars into the market rather than run them to the ground and eventually junk them.
And I have a question for you about your dilemma then: Are taxes not, by definition, the government taking our money by force and giving it away to others? I don’t have an option of where my tax dollars go. So I am being forced to pay a large portion of my taxes to the military when I would rather not. Agreed?
Thanks for the comment!
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Jason R Fisher Reply:
August 27th, 2009 at 12:21 pm |
@MyLifeROI, OK, I hadn’t seen the rest of the data. I will be interested in seeing how things unfold in the next year or so.
Selling 700k cars in one month may have created some benefits but it may also create issues when for the next 6 months to a year far less cars are being sold. It may just have postponed the problem.
Even if the car was only worth $500. Those cars will be harder to find, the only question is how much harder. Some may have driven them into the ground some may have sold them. We won’t know.
And yes all taxes are taking money by force. We all think the money should be spent differently but wouldn’t it be best if it was spent by the people who earned it? As for the military, yes we spend to much on it. But it is one thing explicitly stated in the constitution that is the Federal governments job, the question of if they do it right is another one all together.
We just won’t know if this was a good idea for a year or so and by then no one will care so the politicians get credit for doing “something” even if in the long run it was the wrong thing.
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August 27th, 2009 at 11:38 am |
I understand the concept of the bill, I think it accomplished it’s immediate goal of stimulating the auto industry. That is fairly evident. My problem is that they haven’t taken the $3billion from me yet. Hell they are looking at a deficit in the Trillions, that 3 billion is kind of chump change. Where does the money come from to pay for this, and defense spending, and all the other BS that the government writes up under the premise of “economic stimulus”.
They should have started out with programs like this instead of blowing their wad on crap at the get go. It seems to me this is the only program they have come up with to date that really stimulated the economy. Of course I am not an economist.
kyle´s last blog ..Understanding Debt
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MyLifeROI Reply:
August 31st, 2009 at 4:14 pm |
@kyle,
I echo your sentiments. The unfortunate answer to “Where does the money come from to pay for this, and defense spending, and all the other BS that the government writes up under the premise of “economic stimulus”.” is, as you are surely aware, other countries.
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August 27th, 2009 at 10:50 pm |
The constitution also expressly provides for big presidential parties for visiting diplomats ala Nancy Reagan. I would much rather pay to “clear the air” of clunkers (I do love the military though, they paid for my minivan).
I appreciate your broader look. Aside from the potential economy boost, less oil out of the ground is a major money saver, war/diplomacy saver, environmental saver, health saver. My family didn’t take advantage of the program, but it appears to have more wide-spread and tangible results for citizens that the other stimulants didn’t.
rebecca´s last blog ..Teaching, Testing, Thinking
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MyLifeROI Reply:
August 31st, 2009 at 4:53 pm |
@rebecca,
The economic and diplomatic impact of increased fuel efficiency is an interesting one.
Let’s do some quick math:
The average increase in fuel efficiency from the clunker to the new car was 9.1 mpg. The average American drives somewhere around 15,000 miles per year. (Gallons used @ 15.8 = 950 ; Gallons used @ 24.9 = 603 ; Gallons saved per year by getting rid of clunker = 347)
690,114 cars were sold with each saving 347 gallons per year, on average.
Total gallons of gas saved per year: 239,469,558
Now, how many barrels of oil did that save us per year? Using the better refining methods, you can yield about half of a 42 gallon barrel of oil into gasoline. So we will use 21 gallons of gas per barrel (42 gallons) of crude oil.
Thus, 239,469,558 gallons of gas came from 478,939,116 gallons of crude oil using a better than average refinement ratio. Divide the gallons of crude oil by 42 gallons/barrel and you get 11,403,313 barrels of crude oil. Per day that equates to 31,242 barrels.
As of 2007, the USA consumed 20,680,000 barrels of crude oil per day!
Safe to say that Cash for Clunkers cut oil consumption by 0.15%? Don’t know. But using a lot of averages it may be the case!
Interesting thought exercise nonetheless.
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August 28th, 2009 at 10:35 am |
Going back to Jason’s comments, I post about consumer reports results and they showed the top 10 traded in and top 10 purchased, and all of the top 10 traded in were US automakers and 8 of the top 10 purchased were Asian.
It is nice to see GM did benefit, because from the looks of the reports the Asian carmakers benefited quite a bit as well…
ChristianPF´s last blog ..The Message Bible MP3 Giveaway and other news
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MyLifeROI Reply:
September 1st, 2009 at 11:18 am |
@ChristianPF,
Those facts are indeed interesting. But there are so many variables to consider. Were all of the top 10 traded in American because American car companies neglected fuel efficiency for so long? Or because their quality is lower? Or because the perception of quality is lower? I don’t know the answers, but there has to be a reason, right?!
The fact that 8 of the 10 purchased were from Asian car manufacturers, though, doesn’t mean our countrymen aren’t being helped. A lot of “domestic” cars are made in Mexico or other countries and a lot of “foreign” cars are made in America. In fact, I don’t know if this still stands but at one point the “Most American” car in terms of labor AND parts was the Honda Accord.
For the US automakers that didn’t get a huge push, the auto suppliers will. That will help the US automakers if you think about it.
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September 1st, 2009 at 11:23 am |
Yea, I am not sure why so many of the US cars were traded. And you are right, it really is a world market and the lines are becoming more and more blurred. The fact is that, like you mentioned, if foreign cars are sold in the US, there are still a lot of Americans who will be benefited by it…
ChristianPF´s last blog ..Government redistribution of wealth: Is it right?
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September 8th, 2009 at 6:42 pm |
The numbers published by the Govt for the top selling new vehicles are skewed. The actual numbers include two full-size trucks and a small crossover SUV.
http://money.cnn.com/2009/08/07/autos/cash_for_clunkers_sales/
I know a guy where I work, who traded in his old truck (10 mpg) for a new full sized truck that makes 15 mpg!
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