Friday, August 07, 2009

More Cash for More Clunkers

Yesterday, the Senate passed the bill to add $2 billion to the cash for clunkers program. The program, formally known as CARS (the Car Allowance Rebate System), has run through most of its funding since the beginning of last week. The Washington Post has the latest figures:
On Wednesday, the Transportation Department published new figures showing that a total of 184,304 trades had consumed $775.2 million of the $1 billion originally appropriated.
The program is prompting consumers to trade in for higher mileage vehicles, with an average increase of 9.6 mpg. One reader did some calculating and concluded that the program had "little relevance to reducing US oil demand." While I am gratified that this blog attracts readers who are willing to do the math in making a point, I can't agree with his conclusion.
Cash for clunkers is not primarily an energy bill. We're in the depths of the country's worst economic crisis since the 1930s. Today's unemployment report marks the 19th month of job losses since the recession began. The U.S. lost only 247,000 jobs in July, even though the rate dropped to 9.4 percent.
The primary effect of CARS is to stimulate demand, and nudge the country in the direction of better fuel mileage while we're at it. The vehicles replaced so far represent roughly 0.1 percent of the 250 million passenger vehicles on the road. Replacing them with more efficient models will take time, and sustained effort. You may recall that auto executives joined President Obama to announce plans to increase fuel efficiency standards earlier this year.
What the cash for clunkers program is doing is lifting the market above the break-even point for GM and Chrysler and clearing out inventories, which have dropped sharply since last fall. If demand keeps up, then auto dealers will have to order new stock, prompting manufacturers to ramp up production for the first time in nearly two years.


Anonymous Edmund Dohnert said...

Tom -

You may be pleased to know that TommyWonk is one of my regular stops when I do my routine morning internet surfing.

Well, as profligate government spending goes, the Cash for Clunkers program is small potates (roughly equivalent to funding our adventures in Iraq and Afghanistan for about a week). This is like you or I throwing away nickels. So I suppose there ARE worse things.

However, my main point was that i) this has little to do with reducing gasoline demand, and ii) has dubious value because it is essentially a transfer of money from taxpayers (both living and yet-to-be born) to the auto industry. It appears that you concede the first point but not the second.

One other observation. According to this morning's News Journal, out of the top ten cars purchased under the Cash for Clunkers program three were Toyotas, two were Hondas, and one was a Hyundai. While the auto industry is increasingly global, one can still conclude that a significant chuck of that Cash for Clunkers cash will wind up in Japan and Korea. I am SO glad that my tax dollars are also helping Japanese and Korean auto workers.

10:37 AM, August 07, 2009  

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