Did 'Cash for Clunkers' Really Work?

Did the Obama administration's "Cash for Clunkers" program work as intended, or was the program a clunker itself?

At least two auto-industry economists believe the program was a success.

"We've looked at two different follow-up studies, both of which talked to the people who actually made the clunker transactions, and what you found was that it was a typical used-car buyer who was buying a new car, many for the first time," explained Paul Taylor, chief economist for the National Automobile Dealers Association, during a panel discussion at the Center for Automotive Research's Management Briefing Seminars in Traverse City, Mich.

It's been "very hard to get the message out" about the good things accomplished by the program, Taylor lamented, because critics have worked hard -- and have spent a lot of money -- to try to prove it was a failure.

"But clunkers actually did what it was supposed to do, which is create new buyers and create new manufacturing activity to back up that inventory from those new buyers," Taylor said.

Ellen Hughes-Cromwick, chief economist for Ford Motor Co. (IW 500/6), asserted that Cash for Clunkers "was a very effective program" that came at a time when the auto industry had hit rock-bottom.

"This program was turnkey," Cromwick said. "It was put in place, it happened quickly and it did actually stabilize production for the auto industry. And from that point forward, there really was some expansion not only of sales but production."

The program, which offered vouchers to help buyers defray the cost of swapping their old gas-guzzlers for new fuel-efficient vehicles in the second half of 2009, "created some new car buyers who didn't have a history of buying new cars," Taylor noted.

For many of the Cash for Clunkers participants, the vouchers "created the first viable down payment they had on a new car," he added.

"With many of the shovel-ready projects [of the stimulus program], that first shovel has not turned yet," Taylor said. "But that one had an instantaneous effect on the market, and you can see it in the statistics. But more importantly, you can see it in these studies that actually talked to the clunker transactors."

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