Study: Cash for Clunkers Was a $3 Billion Jalopy
Philip Wegmann /
A new study finds the government’s Cash for Clunkers program hurt the industry it intended to help, leaving taxpayers to cover the $3 billion price tag.
The Texas A&M University study reveals that any benefit “was completely offset” by a consumer’s tendency to purchase cheaper vehicles with the federal credit. Altogether, researchers estimate the auto industry lost $3 billion.
In 2009, Congress passed and President Obama signed the Car Allowance Rebate System Act. Billed as both an economic stimulus program and an environmental protection package, the law sought to buoy an ailing auto industry while reducing overall carbon emissions.
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Better known under the “Cash for Clunkers” moniker, the program allowed consumers to exchange their vehicle for a government credit worth up to $4,500 in cash earmarked for the purchase of a more fuel-efficient choice.
More than 700,000 vehicles were traded in under this program and, regardless of condition, each was destroyed under the law.
Researchers estimate the auto industry lost $3 billion from Cash for Clunkers.
The program quickly exhausted its $1 billion budget; Congress then allocated another $2 billion in extension funding. Taxpayers footed that final bill.
Texas A&M researchers found that Cash for Clunkers “strikingly reduced overall spending on new vehicles [as consumers] tended to purchase less expensive and smaller vehicles such as the Toyota Corolla, which was the most popular new vehicle purchased under the program.”
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On average, buyers spent “an average of $4,600 less on a new vehicle than they otherwise would have.”
Nick Loris, an economist and the Herbert and Joyce Morgan fellow at The Heritage Foundation, believes that the Cash for Clunkers program ran the auto industry into the ground, “providing another example why bureaucrats should not use taxpayer dollars to distort market choices.”
“Not only did the government siphon money from the taxpayer and direct those dollars to the sector of the economy they preferred,” says Loris, “they ended up hurting the auto industry as a whole.”