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Out of Control Policy Blog

Cash 4 Clunkers: Now, for the Unintended Consequences

Samuel Staley
September 23, 2009, 2:12pm

Funny how the Cash for Clunkers (C4C) program snuck up on me this summer. I must not have been watching the inside the beltway politics closely enough to see how this $2.8 billion program gained momentum. Now, the chickens are coming home to roost.

William Jeanes, the auto editor at AOL.com, has an excellent summary of the "morning after" regrets from this program, including buyer's remorse (about 17 percent), the addition to consumer debt (which was already dampening consumer spending), and the ethics of an effective wealth transfer from general taxpayers to the 700,000 new car buyers.

Jeanes also notes that, while average gas mileage per vehicle increased 16.3 to 23.8, most people are likely to put more miles (about 4,000 on average) on the new, more fuel efficient car. Jeanes suggests this will wipe out the benefits of weaning us off gasoline. (I'm a bit more skeptical since we need to look at household driving, not miles put on one car in a two-car household. For example, our household shifted more miles to our Prius from the minivan when we bought the car in 2003, but our household VMT did not increase.)

Nevertheless, research from the University of Michigan suggests the impact on actual fuel economy will be modest. According to the abstract from a September 2009 report by Michael Sivak,

"This study evaluated the effects of the U.S vehicle-scrappage program (“Cash for
Clunkers”) on the average fuel economy of new vehicles purchased in July and August
2009. The predicted, baseline fuel economy, without the existence of the program, was
derived using a model obtained from a regression analysis performed on the data from
October 2007 through June 2009. The regression used the unemployment rate and the
price of gasoline as the predictors of the fuel economy. The results indicate that the
program improved the average fuel economy of all vehicles purchased by 0.6 mpg in July
2009 and 0.7 mpg in August 2009."

Not very impressive.

This is not to say that the C4C program had no benefits. On the contrary, the original idea behind this program was to take older, more polluting cars off the road. The goal was improving environmental air quality, not stimulating the economy, saving the automobile industry, reducing our dependence on foreign oil, or, for that matter, reducing carbon emissions.

As environmental policy consultant Joel Schwartz has repeatedly emphasized, improvements in vehicle technology and fleet turnover--the "greening" of the vehicle fleet--has been and will continue to be the most important contributor to improving air quality. (See also Joel's highly readable essay here.)

The C4C program was a success when measured by this metric, although it's not clear it was cost effective.


Samuel Staley is Research Fellow


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