Make us your home page
Instagram

'Cash for clunkers' was kind of a lemon, analysis says

WASHINGTON — When the Obama administration first proposed its "cash for clunkers" plan in 2009, the reaction was generally favorable. Congress would spend $2.85 billion to encourage drivers to swap their old gas-guzzlers for newer, more fuel-efficient cars.

The program had something for everyone: It would lend a hand to the ailing U.S. auto industry. It would tamp down oil consumption. And, once launched, the program proved so popular with consumers that it burned through $1 billion in its first five days. Sure, a few critics argued that the program wouldn't be very cost-effective, but no one was really listening.

But, as it turns out, the critics were onto something. A new analysis from the Brookings Institution's Ted Gayer and Emily Parker found that the program was fairly inefficient as economic stimulus and mostly pulled forward auto sales that would have happened anyway. It also cut greenhouse-gas emissions a bit — the equivalent of taking up to 5 million cars off the road for a year — but at a steep cost.

"Cash for clunkers" wasn't good stimulus.

Gayer and Parker found that Americans traded in nearly 700,000 old cars ("clunkers") through the program between July 1 and Aug. 24, 2009. Vehicle sales did rise during that period. But a detailed study suggests that some consumers just bought cars slightly earlier than they otherwise would have. Cumulative purchases over the year were basically unchanged.

Other studies have reported similar numbers. A 2011 analysis by Resources for the Future compared U.S. car sales under the program with those in Canada (which didn't have a clunker program) during the same time frame. That study found that 45 percent of cash-for-clunker vouchers went to consumers who would have bought new cars anyway.

Gayer and Parker estimate that pulling these vehicle sales forward probably boosted economic growth by about $2 billion and created about 2,050 jobs. That means the program cost about $1.4 million per job created, making it far less effective than other conventional fiscal stimulus measures, such as cutting payroll taxes or boosting unemployment benefits.

Why does this matter? It was just one tiny program, after all. Yet inefficient stimulus programs add up. One recent study by economists Gerald Carlino and Robert Inman found that the 2009 Recovery Act could have been fully 30 percent more effective in boosting the economy if it had been better designed (i.e., more focused on things such as aid to states and payroll tax cuts).

What about the environmental benefits?

There were some bright spots on that front. By allowing people to upgrade their vehicles, the "cash for clunkers" program did improve the overall efficiency of the U.S. vehicle fleet and cut carbon-dioxide emissions by 8.58 million to 28.3 million tons, the Brookings study found.

Yet economists usually want to know the costs of these environmental benefits, too. And Gayer and Parker point out that this was a fairly inefficient way to reduce emissions — costing somewhere between $91 to $301 per ton of carbon avoided.

The 2011 Resources for the Future study found that "cash for clunkers" increased average fuel economy in the United States by just 0.65 miles per gallon. Similarly, that study found that there were far cheaper ways to achieve similar savings.

There are a couple of reasons the savings might have been so small. For one thing, the fuel-economy requirements were relatively lax: In theory, a person could have traded in a Hummer that got 14 miles per gallon and gotten a $3,500 voucher for a new 18-mpg SUV. What's more, the gain in efficiency would have been partially offset by the energy costs involved in manufacturing the new vehicle.

'Cash for clunkers' was kind of a lemon, analysis says 11/01/13 [Last modified: Friday, November 1, 2013 7:26pm]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Washington Post.
    

Join the discussion: Click to view comments, add yours

Loading...
  1. PunditFact: George Will's comparison of tax preparers, firefighters based on outdated data

    Business

    The statement

    "America has more people employed as tax preparers (1.2 million) than as police and firefighters."

    George Will, July 12 in a column

    The ruling

    WASHINGTON - JANUARY 08: Conservative newspaper columnist George Will poses on the red carpet upon arrival at a salute to FOX News Channel's Brit Hume on January 8, 2009 in Washington, DC. Hume was honored for his 35 years in journalism. (Photo by Brendan Hoffman/Getty Images)
  2. Appointments at Shutts & Bowen and Tech Data highlight this week's Tampa Bay business Movers & Shakers

    Business

    Legal

    Retired U.S. Navy Commander Scott G. Johnson has joined Shutts & Bowen LLP in its Tampa office as a senior attorney in the firm's Government Contracts and Corporate Law Practice Groups. Johnson brings 15 years of legal experience and 24 years of naval service to his position. At Shutts, Scott will …

    United States Navy Commander (Retired) Scott G. Johnson joins Shutts & Bowen LLP in its Tampa office. [Company handout]
  3. Macy's chairman replaces ex-HSN head Grossman on National Retail Federation board

    Retail

    Terry Lundgren, chairman of Macy's Inc., will replace Weight Watchers CEO Mindy Grossman as chair of the National Retail Federation, the organization announced Wednesday. Grossman stepped down from her position following her move from leading St. Petersburg-based HSN to Weight Watchers.

    Weight Watchers CEO and former HSN chief Mindy Grossman is being replaced as chair of the National Retail Federation. [HSN Inc.]
  4. Unexpected weak quarter at MarineMax slashes boating retailer shares nearly 25 percent

    Business

    CLEARWATER — Just when you thought it was safe to go back into the water, a boating business leader issued a small craft warning.

    Bill McGill Jr., CEO of Clearwater's MarineMax, the country's biggest recreational boat retailer. [Courtesy of MarineMax]
  5. CapTrust moving headquarters to downtown Park Tower

    Corporate

    TAMPA — CAPTRUST Advisors, a Raleigh, N.C.-based investment consulting firm, is moving its Tampa offices into Park Tower. CapTrust's new space will be 10,500 square feet — the entirety of the 18th floor of the downtown building, which is scheduled to undergo a multi-million-dollar renovation by 2018.

    CAPTRUST Advisors' Tampa location is moving into Park Tower. Pictured is the current CapTrust location at 102 W. Whiting St. | [Times file photo]