Tuesday, August 04, 2009

Cash for Clunkers: I Don't Buy It

The cash for clunkers program has been wildly successful if you judge by the fact that the first billion dollars in the plan has run out in a matter of days. This money was expected to last well into the fall. The program has apparently done a lot to get people to buy new cars, and getting people to spend money is the whole point of a stimulus program, right? Well, I don't buy it.

Let me start by saying that the program is clearly doing some good. Yes, it did get folks to open their wallets, and clearly some ol' gas guzzlers are going to get scrapped, but is that enough? As far as I am concerned, this stimulus program was pretty much a give away to American car companies. Those very same companies to which the government has already given billions of our dollars.

If the goal of the plan was to get gas guzzling cars and trucks off the road, why did the program pay consumers $3,500 for a minute increase in gas mileage? Folks who traded-in an SUV or light truck could get away with an increase of only a couple of miles in gas mileage and still participate in the program. I can't prove this, but I am willing to bet that in many cases the CO2 emissions required to produce and deliver a new car greatly exceeded the energy that would be saved by the small MPG increase. If the reason for the program is environmental, why not require buyers to replace their vehicles with hybrid cars that would get at least 40 MPG? The answer is simple: such fuel efficient cars are made by foreign manufacturers, and we can't be giving money away to foreigners... even if those cars are produced by Japanese companies here in the US... nah, we can talk about the environment, but giving money to foreigners?! Unthinkable.

Second, how does destroying our assets improve our situation? Cars traded-in under the cash for clunkers program are destroyed. Yes, that's right, they are taken off the road and shredded. How does that help our national economy? Should we boost our construction industry by bulldozing old houses? Would we be better off as a nation if we destroyed our bridges so we could build new ones? We are taking assets that could be re-used and we are dumping them. How can that possibly make us richer as a nation? Is there some alchemy involved here?

Finally, this program is no doubt inflicting severe collateral damage on charities who would otherwise receive many of the vehicles being traded-in as donations. Here is some anecdotal evidence for that happening.

The only sound reasoning for such a program, in my opinion, is the environmental rationale, however those are clearly secondary and minor in the way the program is designed, as far as I can tell.

After I finished writing this post, I read this article which suggests that folks are buying cars with better fuel economy than is required by the Cash for Clunkers rules. If that is indeed the case, my objections on environmental reasons may be over stated (even though the combined gas mileage average is clearly far lower than it could be). We'll see.

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