Cash for Clunkers: Retrospective two years later

cash for clunkers retrospective
Photo courtesy of NJ.com

WASHINGTON D.C. –  Two years have passed since the sunset of Cash for Clunkers, and St. George News has sought reflections on the success and/or unintended consequences of the incentive program launched in 2009 by the One Hundred Eleventh US Congress.

The C4C legislation was formally entitled the Consumer Assistance to Recycle and Save Act of 2009.  (The full text of the bill is found at Title XIII of H.R. 2346, beginning at Page 51 of our link.) Questions are asked though, where was the recycling and was it really a savings offering?

The incentive period ran from July 1 to November 1, 2009. In sum, it allowed for federally funded vouchers of either $3,500 or $4,500 (the cash) towards the purchase or lease of a replacement vehicle which would operate at a step up in fuel efficiency from the vehicle (the clunker) turned in; the greater the step-up, the greater the voucher. Eligibility standards applied. Participating dealers were required to render the drive trains inoperable and, for the most part, destroy the clunkers.

The purposes of the program were to take inefficient fuel consuming vehicles off the roads, thereby contributing to a cleaner environment, as well as providing stimulus for a struggling economy.

$1 billion was originally appropriated for the C4C program, subsequently supplemented with an additional $2 billion; and as that was exhausted, the program ended nearly two months early. According to the Washington Post on August 21, 2009, President Obama in a radio address of August 20, 2009, called the program “successful beyond anybody’s imagination.”

Our contributing retrospectives come from: Stephen Wade, Chairman of the National Auto Dealers Association, which represents nearly 16,000 new car and truck dealerships operating about 32,500 franchises, both domestic and international, and Wade is also the owner of the Stephen Wade Auto Dealership franchise company; Sen. Casey Anderson, R-Utah; and Jeff Watson, owner of IV Seasons Auto Sales in St. George, an independent used car dealership.

“We [NADA] think in hindsight that C4C was a very very good thing, from the standpoint that it gave this economy a jolt,” said Wade. “It gave us a jolt to push it. And we thought it was going to give it a jolt and keep it going, but we fell back into basically where we were.”

In fact, new car sales dropped lower in the month following the C4C incentive program, and remained low so opponents of the program argue that all it did is advance would-be buyers to their purchasing during the incentive period, with the federal contribution, but did not actually stimulate buying that wouldn’t have taken place over time anyway.

On the other hand, Wade said, “it [gave] more people the ability to trade, that weren’t ready to trade, [giving them] an opportunity to step up and get into the trade cycle, … and then it served the economy from a [financing] standpoint.”

Anderson views it as a program that benefited upper middle and upper class while being prohibitive to lower income families and larger families.

“Hybrids are traditionally more expensive than the [traditional] consumption [vehicles],” Anderson said. “You’re forcing [those taking advantage of the C4C program] to buy higher cost vehicles. So basically, what you’re doing is you’re taking money from taxpayers and you’re rewarding high-income families that can afford a higher cost car.”

“I don’t agree with rewarding people that can afford to buy,” he said.

“It arbitrarily distorts the market,” said Anderson. “For example: You can’t fit a family of six into a Toyota Prius or Honda Civic. So families with vans or SUVs can’t fit their family into a hybrid car – so it’s discriminatory. It hurt low-income families, who cannot afford to buy the [replacement] cars. I do not agree with government picking and choosing winners.”

In terms of other stimulus intentions of the program, Wade noted, “We were able to basically streamline things, in that we were able to build more cars, which put more people back to work which gives them a little payroll for them to spend … and the building and selling and all that stuff.”

But Anderson said, “Somebody has to pay for the tax credit [the vouchers which were paid for by tax dollars], let’s assume there’s a lake or a pond of water, typical government stimulus is that someone is on one side of the lake, dips the bucket in to fill it with water, and then goes to the other side and dumps it back into the lake. Government can’t create anything, they can only take from one side of the economy and give to another side of the economy.”

Of course the other purpose of the C4C program was towards environmental improvement.

“We took a record number of old vehicles off the streets,” said Wade.

Whether or not Wade was towing the political line from his perch as Chairman of the NADA, he said, “I’m telling you, I think it was good for us.”

But, one must consider all those perfectly operable vehicles that were required to be destroyed, what impact on other facets of industry and society did that destruction have? Wade acknowledged, “I think it was a tragedy, personally, because I saw autos out there that were good autos that could have been used through,” he paused and then explained, “We have a Wade Family Foundation – I saw cars we could have given to people that could’ve used them; we had to destroy the engines … we had to slug them, it made me sick.”

Anderson explained that the used car lobby influenced the aspect of the final bill that required the destruction of the clunkers. “Basically, in typical political fashion, all parties had to agree in order to provide the [taxpayer funded vouchers], so what happened is the used car lobby said you can’t do this, so what they said to satisfy everyone is, if we destroy them then it won’t hurt used car dealers with a glut of used cars on the market.”

But Watson said that that used car lobby represents “more of the larger units, like Stephen Wade [dealerships], it doesn’t represent the small independent guy on the corner. Obviously,” he said, “if there’s more, I could buy it cheaper, hence sell it cheaper.”

“Used car lobbyists sounds like a short sighted look at things,” continued Watson, “you look retrospectively: If those cars could have instead gone on the market, it would’ve dropped prices but you still have cars TO buy, so even if you’re selling them cheaper, you’re still making money, you still have your mark-up.”

As an example, Watson said, “I’m competing in Vegas for 300 cars to bring home, we’re paying so much more that those values are not reflecting the reality of the auction. Say I buy a Honda civic, they’re all $1,500 or more, so say the car has a wholesale goal of $3,000, and I’m paying [whatever I’m paying]; not only has it pushed all these wholesale prices up, [but] where the public has gotten their information, like Kelly Blue Book or NADA, … the banks can’t value it, then,” he paused, “now my whole thing is upside down – it hurts the used car dealer because it’s not the reality of what we’re buying them [for].”

Wade said they weren’t supposed to even take the parts. “It made me sick – the waste,” he said. Which raises another consequence of the program, or perhaps unintended consequence: Watson said that C4C “took a lot of used parts out of the market.”

For the used car dealer, “our used cars need those parts; so now those parts are no longer on the used parts market – so all of a sudden parts on, (for example on one Dodge 4.7 liter V8 on a coda to a Durango to a Jeep Cherokee for 99 to 2002 were targeted because they get horrible gas mileage, 13 miles per gallon) … but what’s happened is that a lot of those cars did survive, they are on the used car market but when they go out [the parts are either unavailable or much more costly for lack of supply].”  Watson said, “a couple years go, I could buy one of these engines for $1,200 to $1,500; but recently, … they cost around $3,000 – so they just don’t exist or – that’s an example – so of course that makes the cost of replacing parts go up, but it makes the cost of what I can sell the car for go up … or if I sell a car to a customer and a year later the engine goes out, [the necessary parts are] nonexistent or now rare, it’s not available.”

“It’s the weirdest anomaly these parts are so rare now,” Watson said.

In summary, Watson said “overall, I think it was absolutely pointless, the only people you tried to help was the new car dealers, you’re destroying the used car dealers, their inventory, it only helped the new car dealer; they had to destroy our inventory, they had to buy a new car.”

He added, “it hurts the consumer, there’s no such thing as a $3,000 car – we have students, parents, people come say I’ve got $3,000 to buy a car – they’re 15 years old and 150,000 miles – they kind of run but  – they’re not available!”

Anderson summarized his viewpoint this way: “Obama says it’s a good thing. If you go break a window you create a job to fix it.”

“It’s mal-investment,” he said. “You are paying someone to produce something that was already there … The problem with the government being involved in the economy and intervening is that the government inherently picks winners and losers.  So, in this case they picked the manufacturers of new vehicles – so yes, [it stimulated the economy through the new vehicle manufacturers] but if you look at the long term economy, it creates an economy of sand not granite because business never knows … where it’s going to shift.”

Anderson said that this is the thing with winners and losers, what creates a win for one industry today may similarly create a loss for them another day.

Wade, as quoted earlier in this article, said that “in hindsight it was a very very good thing, from the standpoint that it gave this economy a jolt.”  He also said that “C4C was something that was seen by a lot of people as a concern, [but] you know it gave some help to an industry, all facets of the auto industry.”

The analysis of the C4C could be an exhaustive one, and it is not the purpose of this retrospective to address all layers. Two notable areas not covered include: The economic impact of potential reduction in fuel consumption over time, arising from the more fuel efficient vehicles purchased or leased through the C4C incentive program; and the reliability of the federal reimbursement promised to the participating dealers is another; for the most part most did receive payments, albeit not as quickly as promised, on the vouchers allocable to them, but Wade said there was extensive procedural paperwork required and some did not receive their reimbursement for failure of meeting those requirements.

Two years later, the C4C program is one that continues to be debated and people are divided on whether the program itself generated cash for the economy or was an overall clunker itself. From the perspectives of our contributors, it does not seem to have “recycled” much if anything given the waste that came with the destruction of the clunkers.  And the idea of “savings” is a contested point, given the limited sector of the public that were able to take advantage of it. It is unlikely a unanimous consensus on the subject will be achieved any time soon.

jkuzmanic@stgnews.com

Copyright 2011 St. George News. This material may not be published or rewritten without written consent.

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Posted in Business, NewsTagged

10 Comments

  • Laura August 31, 2011 at 12:05 pm

    Wow–very well written article. We need to give free-market more room to thrive and get the federal government out of things of this nature. Let’s see tax dollars be used better than this.

  • Sue August 31, 2011 at 2:10 pm

    I never did understand this program. It was supposed to get ‘clunkers’ off the road. But instead got good mileage cars off the road. I would have jumped at the chance to trade in my old truck that gets 8mpg for a 20 mpg newer one. But mine did not qualify, it was too old. So my 8 mpg is still on the road. What is the gain? Nothing for me, nothing for the environment. It would have been better for those to trade in theirs to get the newer ones, leaving the ‘clunkers’ for people like us to trade up to. They scrapped the wrong ones.

  • Michael West August 31, 2011 at 2:24 pm

    A very interesting and well-balanced article. When you can’t buy an American made television, stereo, computer, shouldn’t we be grateful that President Obama saved General Motors and Chrysler? Or would it be good for America if all cars came from Korea or China? America’s problems have nothing to do with wild spending, but with a devastation of manufacturing jobs. If Americans manufactured as much as they did in 1970 tax revenues would be double and easily pay for Medicare and social Security… as they did back then, Walmart is the enemy, not Obama.

    • LeAnn Walters August 31, 2011 at 3:59 pm

      Why should General Motors and Chrysler need to be saved when their CEO’s and top executives walked away with millions. If I don’t budget my house and work hard to pay my bills no on steps in to save me. There needed to be a reconstruction of management obviously and better spending. Walmart is the enemy? It is the american public, yes YOU and ME that DEMAND cheaper goods, buy on sale, etc. Obama hasn’t done us ANY favors! and he continues to blame all his inexperience and HIS mistakes on mistakes of the past. When will HE take responsibility and stop his global pandering. The free markets are the only way we will ever have a solid base to work and build from and it can’t stand if he continues to buoy it up with debt.

      • Michael West August 31, 2011 at 4:56 pm

        The problem, as I said, is the disappearance of jobs to Asia, plus our money ending up there. Forget Obama or Bush or Mitt or Rick. They can and will do nothing. Now even engineer jobs are being farmed out to Asia. Why should Silicone Valley continue to flourish if Asians can do the same thing for a 5th of the cost? That’s why Obama keeps talking about rebuilding bridges and roads. It’s the only sector not being farmed out by our loyal and patriotic businessmen.

      • Sue August 31, 2011 at 6:44 pm

        Just wait, O will spell out his new jobs incentives in a couple of days. That is, road construction. This was the way before, all the jobs ‘created’ were hwy jobs. How many did it take off unemployment? None. I’ll bet dollars to donuts that only the paving crews got the work, not those unemployed, I am sure they did not hire from the unemployment rolls since unemployment increased during that time. We do not need new road jobs, we need jobs that the average American Citizen can do.

    • Drifter August 31, 2011 at 11:59 pm

      Michael: Obama didn’t save either GM or Chrysler. He basically stole them. In GM’s case, the legitimate stockholders were fleeced at a discount rate for their shares,which were then redistributed to the UAW leadership. The first split showed the government ( Obama administration) owning 55 % of GM. The Canadian government held 12% at that time, while the UAW was given 25 %, leaving 8% to the formerly majority stockholders

      The deal was later complicated when Obama gave almost half of our government’s shares to the Chinese government lieu of loan service.

    • Drifter September 1, 2011 at 12:04 am

      BTW Michael: Walmart is one of the largest employers in our country so I don’t think that “enemies” is an apt description…

      • Michael West September 1, 2011 at 5:15 am

        Well, let’s list all the pluses, the wonderful things Walmart has meant for America.

        It’s destroyed all the mom and pop stores with-in 50 miles of it. In other words if your dream is just to have a small store, to work for yourself, hope to God Walmart doesn’t move into your neighborhood.

        Secondly, Walmart is the biggest pusher of Chinese made products in the world. Hence their low prices – that and minimum wage jobs. The owners, the family, have made hundreds of billions of dollars. They and their children will be filthy rich for the next ten generations. Why can’t they now say, “We’ll pay our employees a decent living wage and at least 50% of our products will be made in America from now on..oh, by the way we’ll stop discriminating against women and minorities when it comes to raises and promotions.”

        Teddy Roosevelt (a sensible and fair-minded Republican) fought against the monopolies a century ago. Now they’re back. 6 media companies, like Fox, own 90% of the newspapers, radio and television stations. We see less choice every day. Currently 400 families own as much as the bottom 50% of Americans and the trend is getting worse. America has become a land of consumers, without jobs or with badly paying jobs – and the little guy, whether he is blue collar or the small shop owner is being steam-rolled by the big players like Walmart.

  • Dayna Lundin September 1, 2011 at 8:44 am

    I love the photo!

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