Widely declared a smashing success, the recently concluded $3 billion “Cash for Clunkers” program has received little criticism in the media. For whom was it successful?
Many of the automakers enjoyed a sales boost, at least in the near term. I expect that factories and showrooms might be slow for the remainder of the year. The top 10 trade-ins were all American cars; eight of 10 cars in the top-selling list were foreign cars. If the goal was to move Americans from domestic cars to foreign cars, this was a success. Korean automaker Hyundai reported a 47 percent sales increase over August of last year.
Collateral damage from the program includes charities that would have received some of these cars as donations, businesses that service used cars, and salvage yards that would have reused some of what the federal government demanded be destroyed. The unconscionable destruction of perfectly good engines, regardless of mileage or condition, is a topic for a separate treatise.
I have heard that the real winners were those who participated in the program, and are now sitting behind the wheel of a new car. Just as for automakers and dealers, it may be too soon to declare victory.
Let’s back up to consider why these new car owners were driving clunkers — one of two reasons: They understand the transportation value of driving an older car, or they are driving the car they can afford to purchase, under normal circumstances. Most of the people in the former group, like me, are still driving their car on the clunker list. Those in the latter group, some of them owning their first new car, are now experiencing the cost of owning and insuring a new car.
I can’t help but see the parallels between the “Cash for Clunkers” program and the federal government’s actions that led to the housing crisis. Just as people, regardless of their financial capabilities, were provided the opportunity to own a home, federal legislation is lowering the bar for owning a new car.
About this time next year, maybe sooner, I expect that there will be an oversupply of 2009 cars with 15,000 miles on them, some of which have not had their first oil change.
Steve Rose lives in Minneapolis.