Cash for Clunkers’ Muted Effect on Economy

The Obama administration’s program to encourage new car sales may have encouraged people who would have bought new cars anyway to do so sooner rather than bringing new buyers into the market, according to a UC Berkeley economist.

When the incentive was offered, automakers sold an additional 360,000 vehicles in cities with lots of used cars, only to see sales plummet once the program expired, said Atif Milan, who teaches economics and finance at Cal.

“Cities that had more clunkers and therefore they bought more new cars, they had a much stronger decline in auto sales relative to cities that did not have that much exposure to the Cash for Clunkers program,” he said.

U.S. auto sales fell 5 percent from July to August and 21 percent from the previous year, making last month the worst August for American car sales since 1983.

Milan tracked sales in the 7 months after the $4,000 incentive ended and found a drop of about 360,000 units, suggesting no long-term change in consumers’ habits.

  • James Adams

    This program helped folks and the environment by getting older, polluting cars off the roads and cash to people who needed it. Just like the homebuyer’s subsidy. Both have expired.

    What we who are on the sharp end of the economic downturn see is that mill…, ah, I mean billions of dollars go to the banks and financial institutions whose managers walk away with those dollars without the responsibility of returning any of it to their clients, or of plowing it back into the economy.

    So, isn’t it understandable that we, who are losing our homes and jobs and futures might vote for the outcumbents? Where are we to get real, longlasting, aid, having paid our taxes and voted our conscionces and duties for all these years?

    Aren’t we to feel that our votes have gone to candidates chosen by political parties whose agendas are different from
    those of us who earn honest livings by the sweat of our brows?

    The Republicans will profit from the Democrats’ lack of will to oppose their big contributors. Everyone expects the Republicans to suck up to money. Their appeal to anyone who makes less than $500,000 a year is in the expectation that they will make that much money eventually, ot through sucking up.

    I can’t see much changing in the U.S economy without changes in the political evironment. This scares the hell out of the pols; they don’t have any idea why they’re being voted out of office brcause they think they’re doing what folks want, subject to what they their commitment to their sponsors. There’s the rub.

    You can’t serve two masters. Even if you own the media and can convince folks that you aren’t.

    Bon Appetit!

  • Eric Schatmeier

    Your Cash for Clunkers story left out one important feature of the program. In order to participate, car buyers had to be replacing vehicles that got no more than 18 mpg when they were NEW, with new ones that got at least double that mileage. The program’s subsidy went up with the differential, either $3500 or $4500/vehicle. If the average was $4000, then 750,000 polluting, gas guzzling cars were replaced by the same number of modern fuel efficient vehicles. If Americans are to make any meaningful attempt at combatting climate change and dependence on foreign oil, it is precisely this kind of program that needs to be implemented. But we’d better fund it at a level higher than the piddling $3 billion that was eaten through in a few weeks. I’m aware that conservatives hated this program because 1. It was a subsidy for people who aren’t already millionaires, meaning it was welfare, not an incentive. 2. it goes against another of the Reagan-era illusions that everyone should own a Hummer or Exhibitionist and that if we just drill baby drill we’ll always have enough oil, and 3. It was Obama’s idea, so it was automatically bad, but the fact is, that even in the unlikely event that Cash for Clunkers didn’t stimulate the economy or save auto jobs, it improved our energy and environmental picture at a bargain price.

  • Eric Schatmeier

    Your article quotes Atif Milan saying, “Cities that had more clunkers and therefore they bought more new cars, they had a much stronger decline in auto sales relative to cities that did not have much exposure to the Cash for Clunkers program.” Huh? When was a census done on “Cities that had more clunkers?” Also, this was a nationwide program, available anywhere in the U.S. What evidence is there that there were any cities “…that did not have that much exposure to the Cash for Clunkers program?”

blog comments powered by Disqus
Guide To The Holidays
Shine A Light On The Holiday Season With ‘Giving Tuesday’

Listen Live