A clunker is in the eye of the beholder. For people with old pickup trucks, SUVs and gas-guzzling sedans to get rid of, the government’s Cash for Clunkers program was a godsend. It allowed them to collect a government subsidy of $3,500 to $4,500 for trading their clunker in exchange for a more efficient vehicle.
For libertarian and small-government advocates, Cash for Clunkers was an abomination -- soiling the sanctity of the free market with government payments designed to spur the sales of carmakers, some of whom happened to be majority owned by ... the government.
For Republicans, it was a fine target to deride and criticize -- until they realized how popular it was and decided to favor it.
For many Democrats, it at first didn’t do enough for the environment -- until they, too, realized how popular it was and decided to favor it.
For car dealers, it was the program you hated to love. It got buyers into showrooms, but it forced the dealers to do mounds of bureaucratic paperwork and to await their slow-coming welfare checks. It could only remind these evangelists of free enterprise that they were feeding at the government trough.
For both economists and environmentalists, Cash for Clunkers was a mixed bag (more on that in a moment).
For me, it looked a bit like a methadone clinic. Congress found a way to get us to part with the gas-guzzling SUVs we’d become addicted to over the last couple of decades -- by turning them in for slightly less harmful vehicles. But, as with methadone clinics, the scene was kind of pathetic. And, as with methadone clinics, there are some who argued that the program did more harm than good.
The truth is we won’t actually know for at least a year whether Cash for Clunkers was a net gain for either the economy or the environment. Even then, the point will be arguable.
Take the economy: Its advocates sold Cash for Clunkers as pump primer -- a vehicle to get the economy, and particularly the ailing automobile sector, rolling again. It was kind of an afterthought to last winter’s stimulus bill.
But Cash for Clunkers never was going to be cheap, because it involved direct payments of $3,500 to $4,500 for each vehicle. The idea was, however, that it was perfect as a stimulus, because it was structured in a way that would naturally encourage more consumer spending: People who traded in their vehicles also had to pull out their wallet to buy a new car.
Suddenly, showrooms were crowded again. The program quickly ran out of its first billion dollars, so Congress appropriated another $2 billion. The results: At least 690,000 clunkers were brought in, and presumably 690,000 new, more efficient vehicles were purchased in exchange.
In a press release last week, after the program ended, Transportation Secretary Ray LaHood claimed Cash for Clunkers “created or saved 42,000 jobs.” Some industry experts now argue that the program’s end will be horrible for the industry, because so much of the fall’s demand for new cars was met during the summer.
"During the second half of August you'll see pull-ahead demand -- people who would have been buying in November or December," George Augustaitis, a market analyst for an auto consulting firm told the Chicago Tribune. "What I think could be scary for the industry is when ... there is no Cash for Clunkers program come October."
Sorry, George, that dog don’t hunt. Sounds to me like an ungrateful industry whining. Sure, fewer folks will be buying cars in the fall than were stampeding to showrooms over the last month -- probably fewer than would have come in November had Cash for Clunkers never happened.
But the law of supply-and-demand argues that subsidizing a market by $3 billion -- so that the actual cost to the consumer drops -- actually increases demand. And from a cash flow standpoint, getting the business now is better than getting it later. Besides, just the economic activity generated by Cash for Clunkers had to be stimulative for the overall economy, and what’s good for the economy is good for automakers and car dealers.
But is what’s good for the auto industry good for the environment? Well, that depends on a lot of things that we don’t yet know. Some environmentalists criticized Cash for Clunkers early, arguing that simply trashing vehicles that might otherwise not be trashed was wasteful. It didn’t help from an environmental perspective that Cash for Clunkers came along shortly after GM, which was emerging from bankruptcy, had abandoned a program designed to recycle mercury and other toxic materials from junked vehicles.
But all along the big environmental issue with Cash for Clunkers revolved around climate change and carbon. Environment-friendly lawmakers tried to keep the program more energy friendly. Citing the amount of carbon emitted during the manufacturing process, they wanted Cash for Clunkers to make up for that by requiring the new cars to get around 13 miles per gallon more than the clunkers did. But dealers used their formidable clout to knock that gap down to 10 miles per gallon.
In other words, the nationwide fleet of vehicles after Cash for Clunkers would be more efficient than the fleet before -- but it wouldn’t be as big a jump in efficiency as environmentalists had wanted.
According to the Transportation Department’s end-of-program statistical roundup, the clunkers that were turned in averaged 15.8 mpg, while the new cars averaged 24.9 mpg -- about a 60 percent jump in efficiency. Was that enough to make Cash for Clunkers a net carbon reducer?
According to one formula, absolutely. Figure that manufacturers release eight tons of carbon dioxide for each new vehicle. A car that’s driven 15,000 miles each year, would release around three-and-a-half tons less each year for every 10 miles per gallon improvement in efficiency. Under that simple formula, carbon savings would eclipse the amount released to make the new cars in just over two years.
The truth is that analyzing such a program is a lot more complicated than that. There are other questions to ask: Will the new car be driven a lot more than the old car? Would a lot of these transactions be going on anyway? Could the money that was used on clunkers have been better used elsewhere (much of it came from an Energy Department grants for innovation grants program)?
But the unrelenting sexiness of the story -- mad photos of cars being crushed, high emotions by dealers frustrated with red tape, excited consumers driving off in new cars -- have locked popular impressions long before any sober analyses can be completed. And I suspect that impression will be much like my own: On balance, it seems to me that the methadone clinic did its job well this time around.
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