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Cash-for-Clunkers has failed, the Car is lost

Cash-for-Clunkers has failed, the Car is lost

Trying to manipulate the used car market had unintended consequences.

A new study is claiming that President Obama’s controversial “Cash for Clunkers” program negatively impacted the amount of money Americans spent on new cars, and had no overall impact on how many new cars were sold.

“Cash for Corollas: When Stimulus Reduces Spending,” a new study out of Texas A&M University, suggests that not only did Cash for Clunkers fail to stimulate the new car industry, it also acted at odds with environmental restrictions that eventually contributed to the program’s failure. From the abstract:

Cash for Clunkers was a 2009 economic stimulus program aimed at increasing new vehicle spending by subsidizing the replacement of older vehicles. Using a regression discontinuity design, we show the increase in sales during the two month program was completely offset during the following seven to nine months, consistent with previous research. However, we also find the program’s fuel efficiency restrictions induced households to purchase more fuel efficient but less expensive vehicles, thereby reducing industry revenues by three billion dollars over the entire nine to eleven month period. This highlights the conflict between the stimulus and environmental objectives of the policy.

In his overview of the “Cash for Corollas” study, AEI’s James Pethokoukis notes that the study contradicts the White House’s claim that the program would pull from future car sales to increase current demand and overall car sales.

Consistent with the existing literature, we show that while the program significantly increased the number of vehicles sold during the two months of the program, this entire increase represented a shift from sales that would have occurred in the following seven to nine months. Thus, over a nine to eleven month period, the program had no impact on the number of vehicles sold.

Anyone who has read this blog over the past few years could have seen this coming. Legal Insurrection’s William Jacobson predicted these problems, and wrote extensively about how “Cash for Clunkers” was hurting both businesses and consumers as far back as 2009:

While Cash for Clunkers is being portrayed as a success, in reality it is driving up prices for consumers of all vehicles and used parts, but hits used car buyers and those who cannot afford a new car the hardest because the government rebates only apply to new vehicles. More important, this government program is likely to create a substantial distortion of market forces and a collapse of demand once the program ends.

He also used Rhode Island as a case study to describe how the program affected citizens’ state tax burden:

But the market distortion caused by government intervention is hitting Rhode Islanders particularly hard.

Rhode Island taxes the value of automobiles (yeah, welcome to our nightmare). The value of the automobile for tax purposes is based on the fair market value at December 31 of the preceding calendar year.

So Rhode Islanders are being taxed this year based on the inflated value of used cars last year primarily as a result of the Cash for Clunkers program.

But it gets worse. Rhode Island used to exempt the first $6,000 of value, but in a revenue raising measure, is allowing municipalities to lower the exemption to $500.

The result is a nasty tax bite for Rhode Islanders who own used cars[…]

Government action has consequences, and in this case, what was touted as a “stimulus” was nothing but a burden on a struggling economy, and cost families money in the midst of a recession.

Meanwhile, Bloomberg reports that the used car supply is finally recovering. “Cash for Clunkers” took about 700,000 used cars off the road, which increased demand for and raised prices on used cars. However, a recent uptick in new car sales is putting more used cars on the lot, balancing supply and demand and making used cars more affordable again. Automakers are now in a position that will require them to create incentive programs attached to new car purchases in order to maintain current sales levels and draw people away from the bargains at the used car lot.

“Cash for Clunkers” may not have fulfilled its promises to boost car sales, but it did manage to shift the market equilibrium in a way that made used cars less affordable, destroyed any incentive to splurge on a new car, and is now putting auto makers at risk for another downturn in sales.

In other words, it’s business as usual in Obama’s America.

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Comments

Worse, CFC didn’t just benefit low-income people. My sister, a Clinical Psychologist with a PhD, got a nice new car out of it.

That program was corrupt from the get-go.

NC Mountain Girl | August 6, 2014 at 10:43 am

The people who took advantage of the program to accelerate a new car purchase were exactly the type of people who drove the opposite of clunkers. Their older cars were not only well maintained but often low mileage for their model year. As a result, not only did the price for used cars increase after cash for clunkers, but for a while it became close to impossible to find a used car that didn’t have 200K on the odometer.

How entertaining that our “betters” missed all this. They were so busy manipulating the public that they never considered what the actual result would be. They always forget to consider human nature in their policies and so those policies fail. When are the central planners and statists ever going to learn that they are just not smart enough to do what they want to do? When will they learn that they are not skilled, knowledgeable or creative enough to do central planing. They just never get it and we get stuck with the consequences.

    “They were so busy manipulating the public that they never considered what the actual result would be. They always forget to consider human nature in their policies and so those policies fail.”

    Swap the order of those two sentences, and your answer presents itself.

    The collectivists’/statists’ goal is to manipulate human nature out of the public consciousness. Humans are inherently individualistic and self-serving – which is not a bad thing (more on that in a bit) – but the statist goal is to remove these traits and make humans expendable, unthinking cogs in the machine.

    As for your other questions: Obama believes he’s the smartest man in the room. In his mind, if anyone is smart enough to pull these schemes off, it’d be himself. To admit failure would be to acknowledge that he’s not as smart as he thinks he is, which will never happen.

    On human nature: humans are naturally selfish. It’s not a bad thing. Two examples: innovation/invention, and free-market economics.
    – Invention and innovation are spawned by necessity, and no necessity is as acute as your own, or that of someone close to you. Inventors don’t normally set out to change the world, but merely to make life easier for themselves or their family/friends/colleagues.
    – In a free market, no transaction takes place unless both parties benefit. The benefit isn’t always monetary, but there’s ALWAYS a benefit (even “clearance” items sold below cost have the benefit of “clearing” valuable inventory space).

    Policies and economic systems just work better if they’re implemented on the basis of human nature, rather than in spite of it.

    JackRussellTerrierist in reply to showtime8. | August 7, 2014 at 1:35 pm

    Our betters couldn’t care less how their program impacted the public. Their media Praetorian Guard gave them the photo ops, the free advertising for this economic boondoggle, and gave King obamullah another jewel in his crown, along with the ones he earned for his “shovel-ready” jobs.

    A good day’s work for the media.

This result was predicted, based on known economic principles derived from past experiments. That is why economics is known as “The Dismal Science.” Every time somebody tried to “do good,” it backfires.

This administration, and the Democratic Party at the national level, simply refuse to allow them to be educated on topics that are well-documented, not the least of which are the historical events of the last 60 years. They don’t do math, they don’t do science, they don’t do history. Further, they pretend that the excuse “I did not read the information from my subordinates on topics of my responsibility” is acceptable.

PersonFromPorlock | August 6, 2014 at 11:53 am

It is impossible for government programs intended to do good to fail: therefore, reports like this merely highlight the evil nature of the analysts. /Demspin

The tagline for Obamanomics:

“Nobody told me there would be math!”

    Heh.

    Why do I need to learn [arithmetic/algebra/calculus]? I’ll never use it in real life.

    Whined every Obama Administration member, everywhere.

it really nailed used parts market too as none of the CFC cars could be harvested, they required destruction.
so people drove with evap/emission/fuel systems not working right as they could not afford new parts. in many cases used parts work well here.
even stuff like side mirrors for crown vics became an issue up here.

TrooperJohnSmith | August 6, 2014 at 12:31 pm

The story mentions what a relative in the car business told me from the outset. C4C took so many good used cars off the market that it substantially raised the price of transportation, especially for the working poor. It has also almost destroyed the used parts market, so it is much harder to repair and recondition older cars.

The elites push the poor into mass transit, all the while keeping them convinced that Democrats love the poor.

I believe that Thomas Sowell calls this kind of ‘nonsense’ “Stage One Thinking”.

The elite ‘planners’ never bother to think beyond Stage One to see the implications of their actions. The same holds true for minimum wage laws and the egregious corporate tax rate and the Dodd-Frank regulations, ad infinitum…

In the same vein (yes a pun) we now have the well-thought out Obamacare. Nancy Pelosi “guarunnteed” that we will know what is in the bill after it is passed. She was right! And boy are we screwed! The health-care market place for consumers is infested with ebola government! And, the well-thought out, well-planned and carefully implemented ACA website alone has cost over $800 million to date! (We could use that money for border security!)

Keynesian and Krugman ‘in-the-moment’ economic policies have come to mean… government creates monstrous piles of Monopoly money (or some bad-ass debt, to the holders of the bonds and notes) in order to create some kind of whirling dervish consumer stimulus spending spree with a roll of the die and a move around their regulated board game.

Control the markets via government intervention: That’s every narcissist liberal’s dream.
They refuse to accept what’s proven again and again: only markets can control markets.

Governments are like the opposite of King Midas: Everything they touch turns to crap.

Humphrey's Executor | August 6, 2014 at 1:52 pm

It was a deal I couldn’t pass up. So I traded in my beloved 1992 F150 for a new Ford Ranger. The old truck had 200K miles on it but it still looked great and ran OK. The salesman told me later the mechanics shook their heads in sorrow when they had to pour silcon into the running engine to kill it, and send the body to the scrap yard.

    That was a part of the program I never was able to understand. Getting inefficient, barely-running husks off the road, I can get. But what you’re describing is literally creating garbage out of serviceable goods.

    Your old F150 was no doubt more valuable as a working truck than as scrap metal – heck, it was probably more valuable as a source of recyclable parts than as scrap – but the program made no exceptions: every car traded in, no matter how well-maintained, was to be killed and scrapped.

    That blanket, one-size-fits-all, no-exceptions treatment is one of the hallmarks of government programs under the Obama Administration, and is one of the many reasons why they fail.

      I agree 100%. I do some work with nonprofits (charity, not political) in my area, and it almost made me weep to see some of the vehicles that were getting destroyed. They could have been donated to any of the charities out here in the real world who accept used vehicles as donations. There are youth ranches where the vehicles are used in shop classes to teach kids useful skills, there are groups who do them up so that the low-income people they serve can use them, there are groups which soup them up and sell them on at auction and use the money to fund their cause, there are so many good and practical ways that even old “clunkers” can be re-used and recycled.

      C4C was just an egregiously wasteful and deeply stupid idea all around.

        Voyager in reply to Amy in FL. | August 10, 2014 at 9:05 am

        That part of it really bothered me about it as well. They spent so much time talking up how green it was, yet they turned an enormous amount of useful stuff into just garbage.

        You might as well burn fields ready for harvest.

I had to scrap a perfectly good 1989 Honda Accord that blew an engine because there were no used engines available, their having been scrapped by Cash for Clunkers.

But but… this can’t be true. The experts all said…

Everything this incompetent parasite touches turns to ash.

The irrationality of putting this incredible fraud in the highest office in the land still staggers the mind (of rational people, anyway — liberal cultists excluded, of course.)

The price for each ton of carbon decreased from the operation indicates that this method has not been an economical technique to minimize emissions, even though it was less expensive than a number of other ecological plans, such as tax subsidy for electric powered cars or the tax credit for ethanol.

Also those that got the rebates from the .gov found a nasty surprise the following year, the amount they got for the CFC was added to their taxable income and they had to pay taxes on it.

putin might ‘out’ 0bama as gay soon
https://www.youtube.com/watch?v=l7iPnao3zqU

also… this is what your typical arab/follower of islam does on a daily basis (as does 0bama)
https://www.youtube.com/watch?v=ZI-yKzg3U0U

C4C really has been a ray of brown for used budgeted minded people. I helped my frugal niece with a car purchase. Three weeks into it we came to conclusion that a new purchase was as good as buying used. Some used models two or three years old where as much as a new zero miles full warranty car. O and his idiot advisers and policies are painting a craptastic shade of brown on this country

At the time I had two cars that were genuine clunkers (1982 Dodge Rampage and 1992 Pontiac Grand Am), and neither of them were eligible for the program. It was BS from the beginning.

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