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    Cash-for-Clunkers has failed, the Car is lost

    Cash-for-Clunkers has failed, the Car is lost

    Trying to manipulate the used car market had unintended consequences.

    A new study is claiming that President Obama’s controversial “Cash for Clunkers” program negatively impacted the amount of money Americans spent on new cars, and had no overall impact on how many new cars were sold.

    “Cash for Corollas: When Stimulus Reduces Spending,” a new study out of Texas A&M University, suggests that not only did Cash for Clunkers fail to stimulate the new car industry, it also acted at odds with environmental restrictions that eventually contributed to the program’s failure. From the abstract:

    Cash for Clunkers was a 2009 economic stimulus program aimed at increasing new vehicle spending by subsidizing the replacement of older vehicles. Using a regression discontinuity design, we show the increase in sales during the two month program was completely offset during the following seven to nine months, consistent with previous research. However, we also find the program’s fuel efficiency restrictions induced households to purchase more fuel efficient but less expensive vehicles, thereby reducing industry revenues by three billion dollars over the entire nine to eleven month period. This highlights the conflict between the stimulus and environmental objectives of the policy.

    In his overview of the “Cash for Corollas” study, AEI’s James Pethokoukis notes that the study contradicts the White House’s claim that the program would pull from future car sales to increase current demand and overall car sales.

    Consistent with the existing literature, we show that while the program significantly increased the number of vehicles sold during the two months of the program, this entire increase represented a shift from sales that would have occurred in the following seven to nine months. Thus, over a nine to eleven month period, the program had no impact on the number of vehicles sold.

    Anyone who has read this blog over the past few years could have seen this coming. Legal Insurrection’s William Jacobson predicted these problems, and wrote extensively about how “Cash for Clunkers” was hurting both businesses and consumers as far back as 2009:

    While Cash for Clunkers is being portrayed as a success, in reality it is driving up prices for consumers of all vehicles and used parts, but hits used car buyers and those who cannot afford a new car the hardest because the government rebates only apply to new vehicles. More important, this government program is likely to create a substantial distortion of market forces and a collapse of demand once the program ends.

    He also used Rhode Island as a case study to describe how the program affected citizens’ state tax burden:

    But the market distortion caused by government intervention is hitting Rhode Islanders particularly hard.

    Rhode Island taxes the value of automobiles (yeah, welcome to our nightmare). The value of the automobile for tax purposes is based on the fair market value at December 31 of the preceding calendar year.

    So Rhode Islanders are being taxed this year based on the inflated value of used cars last year primarily as a result of the Cash for Clunkers program.

    But it gets worse. Rhode Island used to exempt the first $6,000 of value, but in a revenue raising measure, is allowing municipalities to lower the exemption to $500.

    The result is a nasty tax bite for Rhode Islanders who own used cars[…]

    Government action has consequences, and in this case, what was touted as a “stimulus” was nothing but a burden on a struggling economy, and cost families money in the midst of a recession.

    Meanwhile, Bloomberg reports that the used car supply is finally recovering. “Cash for Clunkers” took about 700,000 used cars off the road, which increased demand for and raised prices on used cars. However, a recent uptick in new car sales is putting more used cars on the lot, balancing supply and demand and making used cars more affordable again. Automakers are now in a position that will require them to create incentive programs attached to new car purchases in order to maintain current sales levels and draw people away from the bargains at the used car lot.

    “Cash for Clunkers” may not have fulfilled its promises to boost car sales, but it did manage to shift the market equilibrium in a way that made used cars less affordable, destroyed any incentive to splurge on a new car, and is now putting auto makers at risk for another downturn in sales.

    In other words, it’s business as usual in Obama’s America.


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    Also those that got the rebates from the .gov found a nasty surprise the following year, the amount they got for the CFC was added to their taxable income and they had to pay taxes on it.

    YourMaster | August 10, 2014 at 1:15 am

    putin might ‘out’ 0bama as gay soon

    also… this is what your typical arab/follower of islam does on a daily basis (as does 0bama)

    C4C really has been a ray of brown for used budgeted minded people. I helped my frugal niece with a car purchase. Three weeks into it we came to conclusion that a new purchase was as good as buying used. Some used models two or three years old where as much as a new zero miles full warranty car. O and his idiot advisers and policies are painting a craptastic shade of brown on this country

    At the time I had two cars that were genuine clunkers (1982 Dodge Rampage and 1992 Pontiac Grand Am), and neither of them were eligible for the program. It was BS from the beginning.

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