Impact of cash for clunkers

The Cash for Clunkers program paid auto dealers around $4,000 each time they sold customers a new, more fuel efficient vehicle for an older, less energy efficient car. The rebate was then passed on to consumers in the form of a lower price. Do we know what this program did to the sales of vehicles? N.C. State University economist Mike Walden responds.

“Well, we now know. … We have enough data in to be able to estimate this, and, actually two economists with the National Bureau of Economic Research did this. And what they estimated is that during the summer of 2009, when the program ran, it resulted in 360,000 more vehicles being sold because of the program being available. So the program did achieve its goal of increasing sales in 2009 and also moving our auto fleet, if you will, from less fuel efficient vehicles to more fuel efficient vehicles.

“But, there is a but here, economists also estimated that those 360,000 vehicles would have been sold later. So really there was no net gain in terms of total vehicles sold over some span of years. It was simply that people said, ‘Oh, hey, we are going to get this $4,000 break, instead of waiting until next year to buy a car, let’s go ahead and buy this year.’ A very rational thought, so those additional vehicles that were sold were pulled forward from the future.

“Now that doesn’t necessarily mean the program was bad. In fact, you could argue that with the auto business and auto sales up — improved last year and this year — that perhaps it was important to move some of those sales forward in 2009, when we were at the peak of the recession.

“So this is the way this program has worked. And incidentally we also see that the credit for home buyers also worked in the same way.”

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