Cash for Clunkers Had Some Clunker Results

November 9, 2009

A lot of taxpayer money has been thrown around recently in the automotive sector. The federal government is contemplating its third round of bailouts for an ailing auto industry.

What seems particularly aggravating for American consumers and taxpayers is the fact that the government has not only been bailing out the automakers, but also the auto lenders, who arguably caused a lot of the problems now facing the United States. This is the third round of bailouts for auto lender GMAC. The bailout total for GMAC will top $25.5 billion so far.

The key difference between this bailout and the bailout of banks is that the banks appear to be stabilizing and making profits again, whereas domestic automakers are still in financial turmoil. Perhaps the best case to be made for bailing out the auto industry, though, is the fact that automakers and auto lenders provide so many jobs in the US, and allowing them to go bankrupt at a time when unemployment has nearly topped 10% would be irresponsible.

In addition, news recently broke that the federal Cash for Clunkers program managed to get just under 700,000 vehicles sold. It is estimated that taxpayers paid $24,000 per car for the program.

Apparently, only 125,000 of the total vehicles sold were ones that would not have been sold anyway, according to automotive website Edmunds.com. On the heels of news about third quarter GDP growth of 3.5%, approximately half of that GDP growth can be attributed to automotive sales, and a large percentage of those sales can be attributed to the Cash for Clunkers program.

The motivation for selling cars under the Cash for Clunkers program was to get up to $4,500 in rebates to trade in a less fuel-efficient “clunker” for a new vehicle that met certain fuel economy standards. This was intended both as a way to jumpstart the sagging automotive sector and to improve vehicle emissions across the country.

Based on Edmunds.com and its analysis, even though the rebate was only $4,000 on average, the fact that most of the sales would have taken place anyway undermines the success of the federal program. Had the Cash for Clunkers program not occurred, Edmunds.com posits that October sales would have been higher than they currently reported.

Naturally, there are multiple ways to look at both the bailout of the automotive industry and the outcome of the Cash for Clunkers program. The ultimate goal of both programs was to stabilize an economy that has been crippled by a housing crisis, high unemployment, a credit crunch, and the financial struggles of large institutions. Whether these programs have succeeded or not is hard to say, but the real question that should be on Americans’ minds is: Are these programs temporary fixes, or have they truly helped us to put the worst of this recession behind us?

Either way, news has looked up recently. With GDP growth the highest it’s been in the past several quarters and a stock market rally, times do seem to be looking up. Whether the growth is a fluke caused by government stimulus or a foundation from which the economy may continue to recover, only time will tell.

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