Is Somebody Lying About "Cash for Clunkers"?

The numbers just don’t seem to add up.

The “Cash for Clunkers” program gives roughly a $4,000 subsidy when a person trades in a clunker for a new car that gets better gas mileage.

Congress set aside $1 billion to fund the program. If all of that money was going to pay these subsidies, there would be enough money to pay for 250,000 clunkers.

The program went into place on July 24th. One week later, the program was said to be out of money.

In 2006, before the current ills of the automakers, the average number of new cars sold in a week in the United States was 125,000.

So if you believe the numbers, sales involving clunkers as trade-ins last week represented more than two times the weekly sales of new vehicles when the industry was healthy.

Maybe that is possible, but something just does not smell right to me, especially because at the start of the week no one seemed to be worried that the Clunkers program would run out of money (especially not me!), so there was no reason to rush out and take advantage of it.


jimmyc

Wasn't it retroactive back to July 1st? Who has the data on the number of cars received in junkyards ... they should hiring at junkyards to crush those 250,000 cars.

randy

Dealers have been taking orders since the law went into effect, on July 1st...... So it is actually 4 weeks.

M.B.

Supposedly dealers have been writing up the paperwork for months and holding it untill the anticipated program went in to effect. So we are seing two months of sales in one week.

Just a bad program all round. Sending perfectly good cars to their early grave to save the environment. How much pollution to make all the new cars?

Ry Jones

A number of dealerships in my area (Seattle) started taking cars for this program on 01 JULY, when it opened. It is the compensation part that's only just opened up.

Joe

I was just thinking this on Friday... good to know I'm not alone! It would be great to know that the program worked this well, but the numbers just sound a bit silly...

J

Yes, but about 1/3 of the people who would have purchased a vehicle in the last year didn't move ahead with purchase (due to credit issues, uncertainty over the economy, etc.). That's some pretty significant pent-up demand, just waiting for the right release valve!

Peteyy

On Friday a JD Power analyst in an NPR radio interview estimated that the $1 billion dollar program resulted in 40,000 net unit sales. That works out to $25,000/unit the taxpayer helped subsidized....what a deal!

aubrey

You aren't factoring in the 100 million dollar bureaucracy.

JoshC

Junkyards don't want these cars -- the engine is the profitable part for them, and the engines have to be destroyed at the dealership. By law, all these cars are good for is scrap metal, and that's hardly worth the expense of hauling away from the dealer and stripping the non-metal parts.

rick

I had breakfast with someone this morning who is a accounting manager for a local dealership that has four lots. He said the paperwork is tremendous. They sold about 120 new cars a week compared to 400+ used cars.

Also the cars are not necessarily crushed. The drive train must be disabled by the dealer but the body can be wholesaled off for parts.

Tom L

I agree with what all of the folks above said ;-) I'd like to add that I've heard Congress intends to add an additional $2 billion to the program, and I have to imagine they plan on that money lasting a lot longer than eight days (which is how long it'd last if it were consumed at the same rate). I think we're looking at a sort of glut of built-up demand, and when all is said and done the overall effect of the program isn't going to look out-of-whack.

I've kept up with your previous posts on the program, and I think that as implemented the program addresses many of the concerns that you had. I also disagreed with you strongly when you stated that few cars would qualify, and I posted a couple of examples of vehicles which qualify, are worth less than $3500 as trade-ins, and could realistically be owned by middle-class families who could afford a newer car but might not spring for one 'til Cash for Clunkers popped up.

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dupontd

M.B. - Do you even know the requirements for the trade in? Do you know that production in auto plants is decided upon months in advance? No, you evidently don't.

But we're all better off when an uninformed naysayer says nay.

Mike M

You're also not accounting for pent-up demand.

The frugal folks that drive "clunkers" may have resisted purchasing a new vehicle as a conservative measure due to economic uncertainty. Or just as likely, they aren't customers that normally purchase new vehicles.

With the gov't and manufacturer incentives you can get a new vehicle (and full warranty) at prices closer to late model used prices. The program seems to be pushing at least some of these folks to take pull the trigger on the new purchase, as this seems to be a "once in a lifetime" opportunity.

Some of the early data seems to support this, for example purchasers from the "clunker" program are tending to have better credit than average.

Jason

Are a politician's lips moving?

Greg

What about the possibility of pent-up demand, especially since this program was announced months ago. Anyone who has been planning to buy a car for the past 3 months likely has not bought one in anticipation of this program, provided they had a clunker-worthy vehicle. I'm assuming its hard to analyze this based on the fact that sales figures are weak anyway, but this seems like a plausible explanation to me, especially when you add in any other increases in demand based strictly on the program.

froggyprager

Even if dealers took orders before the door opened, this does seem questionable. It also seems amazing that the fed. government would be able to process these subsidies so quickly to even know how much has been used up in this short time. This is a brand new program that required entirely new rules and data tracking system.

I think before we rush to throw another $2 billion at the program, we should sit back and think through how this could be modified to be more targeted and effective. Are people exploiting a loophole in the program? Are rich people using this more than poor? are the cars being brought in really cars that are in use? Would a smaller subsidy be just as effective? Is there away to encourage the purchase of American cars? Who is benefiting - the car buyers or the car dealers?

The policy wonk in me thinks it is a bit premature to just give it another $2 billion. While there was some pent up demand, I suspect that this $2 billion would be gone in no time and that the need is large, a huge number of people need new cars and are driving old ones. How can we get more bang for our buck?

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Mike

What #3 said. I'll bet it "cost" more in pollution to make the new cars than to keep the old. So it's a double-headed handout for the auto industry... cash from increased sales suring the program, plus removing an equal quantity of perfectly good used cars ("clunker" is a misnomer, since they must have been registered and insured for the preceding year, which is not likely to have been the case if the car was not functional) from the pool, thereby increasing the potential for future new-car sales. So the only people making out are folks in a good enough financial position already to be replacing a perfectly good car with a new one, and the car dealers. Everyone else loses.

Amy

A coworker bought a car with the program before it started. The dealor just held on to the paperwork.

My parents also bought a car immediately after the start date, because they were afraid the program would run out of money.

Neither my parents nor my coworker were about to purchase a new car, though both "clunkers" were definitley ready for the junk pile (my dad's truck was from '91, and my coworker wasn't sure if her jeep would make it to the dealership). The extra incentive from the government allowed them to afford to purchase new vehicles.

A good deal all around. My parents love their new Fusion and my coworker is enjoying a new Escape.

Kevin MN

This sort of analysis is really disappointing. As several other commentators have stated, many dealerships have been taking orders since the program was passed. Also, it doesn't take an economist to realize that many people probably postponed purchases until the program actually went into effect. If you want to make the same "free markets are perfect' arguments that have been discredited over the last year, at least make a reasonable arguement. For instance, there are obviously a lot of people who are receiving the tax credit who would have bought a car without the incentive. There is little benefit for the government to be subsidizing these purchases and I could see a reasonable arguement against the program based on this logic. Instead, we get baseless accusations of fraud from someone who clearly doesn't understand the program and didn't bother to do basic research.

notapolitician

It's still a horrible proposition.

The typical new car is devalued by about 20% the moment you drive it off the lot. The $4,000 the government is offering should hardly be making or breaking a deal.

A new car is a horridly expensive purchase. Nobody would be advised to be suckered into this "deal."