Sunday, August 23, 2009

Unintended consequences of Clunkers program?

In a post titled Cash for Clunkers to end Monday [Aug. 24] night, Jenny Munro writes:

The program, expected to produce 250,000 new-car sales by November, will have generated more than 700,000 in about a month.

Someone had a post back in July that few people would benefit from the program [below]. That "prediction" obviously wasn't reliable.

Munro's article touched on some of the downsides of the clunkers [CARS] program:

Clunkers traded in for the CARS program are destroyed, so used car prices could increase as the supply diminishes, dealers and auction operators said. And charities that accept auto donations are concerned that taking so many used cars out of circulation will cause them to take a donation hit, decreasing money used to fund their operations.

Moreover, shortages of the popular models of new fuel-efficient cars could develop, Thomas said. Although prices wouldn’t be expected to increase, dealers could decide to dump the dealer incentives since the buyer would get the government credit and manufacturer incentives.

The unintended consequences of Clunkers evoke the unintended consequences of the USPTO's recent philosophy of "reject, reject, reject...".

At the beginning of the program [July 24], ABCNews had a post, the first comment to which underlined the stupidity of the way the program was implemented:

This program would actually pay for itself if all the cars were junked or parted out, actually it might make a profit..."

One asks: who benefitted by the total destruction of the clunkers, as opposed to junking them, and recovering the value of car parts within the clunkers?

***On "limited eligibility"

from via edmunds, Cash for Clunkers, each car sale to cost taxpayers $20k apiece -->

Much has been written — both pro and con — about the Cash for Clunkers program that officially launched July 27th. Complexity, limited eligibility and minimal funding are common criticisms. But so far, the chief failing has been overlooked., the premier online resource for automotive information, has determined that even if Cash for Clunkers reaches its budgeted cap, the program will only help drive about 50,000 incremental new car sales, so each one will cost taxpayers a whopping $20,000.
How is this possible?'s research shows that typically 200,000 vehicles worth less than $4,500 are traded in for new vehicles every three months. At best the current Cash for Clunkers program will fund 250,000 such transactions in the same time period — a gain of only 50,000 vehicles. Given that this program is budgeted to cost $1,000,000,000, this increase will come at the cost of $20,000 per extra sale.
"The incremental sales will be limited and at a considerable cost. In effect, we are paying consumers to do something most would do anyway," said Jeremy Anwyl, CEO of "So as a stimulus, the program fails. One could make a slightly stronger argument about the environmental benefits, but even there, the program could have been better designed."
"Really, the best consequence is that many consumers are getting interested in the idea of a new vehicle after hearing about Cash for Clunkers; we have to hope that even if they don't qualify, they will buy a vehicle anyway," Anwyl told Edmunds' "But, how long-lived will that be? Once the program reaches its cap, interest will die down, and sales volume will fall as quickly as it rose. What will motivate shoppers to brave the marketplace in the months following Cash for Clunkers?

**from newsfeedresearcher-->

Where's my reward for not polluting? I have a 1993 Honda del Sol and a 2000 Honda Odyssey. These older cars are not eligible for the Cash for Clunkers program because they get good gas mileage. The result of this program is that people who have been polluting the air with their SUVs get a huge break on new cars, but people who have been driving environmentally responsible vehicles for many years get squat. Government meddling in the free market causes injustices like this every time.


At least one industry analyst argues that the government is getting less bang for its stimulus buck than it appears by stealing sales from future months. And, he says, the program will result in higher car prices for everyone else.

**Previous IPBiz posts:

"Cash for clunkers" and the USPTO: both out of money?

**Note also that there were European clunkers programs:

VW also "benefited much more than Toyota from the European cash-for-clunkers programs," though Toyota saw more sales than VW spurred by the U.S. version of the car-swap program.


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