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Did Cash For Clunkers Increase Car Sales?

Anthony Randazzo
August 24, 2009, 1:40pm

The Cash for Clunkers program is ending today, and the media has been declaring it a smashing success. The headlines this morning on CNN (the station of choice today in the Reason DC offices) have boldly stated that the program has increased car sales and been a big boost to the auto industry. But I am curious about something: how many people bought cars in the past few weeks through the program that wouldn't have over the next six months or so?

Certainly there were some who may have bumped up their purchase of a new car significantly, but how many? My thought is that, since even with a $4,500 max voucher cars still cost thousands of dollars, and since the credit markets aren't the same open flood gates that the federal government is, that most people who bought cars through is program would have in the near future anyway. The program just took most of the people who were going to spread their car buying over the next several month and concentrated it in the here and now. And that doesn't seem like a good thing to me.

If it is true that most people who bought a new fuel efficient vehicle to replace their baby seal slaughtering, Nazi built, environment killing clunker were planning to do this anyway after saving a little more money, then the sales now are a false signal to the auto industry. And that would mean the car companies will now be operating on misinformed data about where the market stands right now.

So was the program helpful? We might know over the next month or so if car sales drop off dramatically. But I could be wrong since this is just a theory without actual numbers. But I contend that those who claim the program has been successful don't have the real numbers yet to back up their position either.

(By the way, this isn't the first time that auto companies have operated from misinformed signals in the marketplace. For years the "No money down," "0% APR," "No payments for two years" deals offered by financing companies like GMAC helped people buy cars a lot sooner than they would have prudently. And those deals didn't work out too well for GMAC.)


Anthony Randazzo is Director of Economic Research


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