The Inconvenient Truth About "Cash for Clunkers" Is $20K Per Sale In Taxpayer Cash

By Michelle Krebs July 27, 2009

Much has been written - both pro and con - about the so-called Cash for Clunkers program CARS logo - 220.JPG that officially launched Monday.

Complexity, limited eligibility and minimal funding are common criticisms, but a chief filing of the program, according to Edmunds.com CEO Jeremy Anwyl is the cost to taxpayers. Even if Cash for Clunkers reaches its budgeted cap of $1 billion, the program will only help drive about 50,000 incremental new car sales, each of which will cost taxpayers a whopping $20,000, according to Edmunds.com's research.

 

Typically 200,000 vehicles worth less than $4,500 are traded in for new vehicles every three months. At best, the current Cash for Clunkers program - officially called the Car Allowance Rebate System (CARS) - will fund 250,000 such transactions in the same time period - a gain of only 50,000 vehicles. Given that this program is budgeted to cost $1 billion, this increase will come at the cost of $20,000 per extra sale.

"The incremental sales will be limited and at a considerable cost. In effect, we are paying consumers to do something most would do anyway," said Anwyl. "So as a stimulus, the program fails. One could make a slightly stronger argument about the environmental benefits, but even there, the program could have been better designed. 

"Really, the best consequence is that many consumers are getting interested in the idea of a new vehicle after hearing about Cash for Clunkers; we have to hope that even if they don't qualify, they will buy a vehicle anyway," added Anwyl. "But, how long-lived will that be? Once the program reaches its cap, interest will die down, and sales volume will fall as quickly as it rose.  What will motivate shoppers to brave the marketplace in the months following Cash for Clunkers?" 

Automakers must step up to continue the momentum. Anwyl points to the current Chrysler incentive program as an example of a creative marketing message that uses the Cash for Clunkers buzz to generate sales and to arm Chrysler dealers with a useful tool when working with Cash for Clunkers "rejects."

Still, for the savvy shopper who qualifes for a $3,500 or $4,500 Cash for Clunkers voucher, good deals are available. Tips for getting a good deal on available on the Cash for Clunkers section of Edmunds.com. Lively discussions about Cash for Clunkers are talking place on Edmunds' CarSpace.com message boards.

 

 

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guy1974 says: 10:01 AM, 07.27.09

The article states that 200,000 cars are already traded in that are worth less than $4500 - those people will gain the $4500 and that will help them either buy a more expensive car than they would. Or they save the money and it helps them spend it on something else. Either way the economy is stimulated, much like the idea behind increased unemployment benefits and COBRA payments.

fulcrumb says: 5:10 PM, 07.27.09

But guy1974,
That's ALL $4500 trades, not all of which qualify as clunkers.

esee1313 says: 1:56 PM, 07.28.09

This analysis assumes that all 200k of the 'typical vehicles worth less than $4,500' traded in will utilize C4C. This is not the case considering the very short window that C4C will be going on. It could easily stimulate an additional 100-150k cars, thereby totally changing all of the numbers shown above.

thom_payne says: 6:11 AM, 07.31.09

In addition to the above comments, there are no hard numbers here. "Typically 200,000 vehicles" -- typically in the worst recession in US history? I doubt it. The inconvenient truth about this article is that it was written in a slipshod manner to appeal to the reader's anti-gov't instincts.

usefullidiot says: 12:54 PM, 08.03.09

I love the way you criticize the commentary on this blog, but you will jump up and down in a showroom screaming that the dealer is "screwing you" if they want more money than what Edmund's says is "True Market".....PATHETIC!!

skptcloptimish says: 7:23 AM, 01.27.10

Now that the dust has settled somewhat on C4C, what are the revised numbers. An earlier estimate used some assumptions on future month sales that have proven to be untrue. So, how many sales might have actually been pulled forward?

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