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"Cash for Clunkers" Ends Monday-Good Riddance to Bad Program?

From Bloomberg: “The U.S. “cash for clunkers” vehicle trade-in program, credited with reviving auto sales and criticized by dealers for slow reimbursements, will close on Aug. 24, Transportation Secretary Ray LaHood said.”

The government extended the $1 billion program into a $3 billion program and although the program is now set to end Monday, the chairman of the National Automobile Dealers Association has reservations the $3 billion will even last through the weekend.

It remains to be seen what will happen to auto sales post cash for clunkers. Union leaders are hopeful while others are less optimistic, warning sales could crash harder than a kid full of soda and skittles. Much could depend on the overall state of the economy but sales and discounts change expectations about prices. Just as people do not rush to the mall after a sale concludes, we can’t imagine people rushing to the dealerships after they just missed out on a $4,500 coupon.

But let’s reinforce the notion that a popular government program doesn’t mean it was a good one. Sure, the government was successful as spending $3 billion in taxpayer dollars, but when isn’t the government good at spending other peoples’ money? Unfortunately, the government hasn’t been so great at transferring the money leaving a lot of dealership owners footing the bill and turning down potential buyers. One owner remarked,

I have not gotten one dollar in reimbursement. I have $300,000 or more dollars out there that Uncle Sam owes us. If they screwed up this program so badly, I wonder what our health care system will be like.”

Ironically, it’s General Motors stepping up to bailout the government by offering cash advances to dealerships. If the large auto manufacturers use taxpayer money from the original bailouts, we can just call it a wash?

The program is also profoundly wasteful in that it forces dealers to destroy the trade-ins — often by using a liquid glass to destroy the engines, which brings into question the alleged environmental benefits from cash for clunkers:

“Building a new car, washing machine or refrigerator takes energy and resources: The manufacture of steel, aluminum and plastics are energy-intensive processes, and some of the materials used in durable goods, especially plastics, use non-renewable fossil fuels as feedstocks as well as energy sources. Disposing of old products, a step required by most incentive and rebate programs, also has environmental costs: It takes additional energy to shred and recycle metals; plastic components often cannot be recycled and end up as landfill cover; and the engine fluids, refrigerants and other chemicals essential to operating products end up as hazardous wastes.”

Moreover, new cars tend to be driven more for a variety of reasons, ranging from reduced fuel and maintenance costs to the excitement of a new car. We shouldn’t be too surprised this happened. When the government makes decisions like this, we face trade offs and unintended consequences.

One unintended consequence we’ve pointed out before is the effect destroying used cars has on charities relying on car donations:

We know there’s going to be a significant impact,” says Chad Iseman, director of the Kidney Cars program for the National Kidney Foundation. Iseman says the foundation gets about 19% of its annual revenue from selling donated cars. The charity said it estimates a 10% to 15% decline because of the federal rebates. White House spokeswoman Jen Psaki says the program, which got a $2 billion boost Friday, will have a “negligible” effect on charities. Psaki says the Car Allowance Rebate System (CARS) was created to provide a “timely, temporary and targeted” economic stimulus and was not intended to divert vehicles from charities.”

George Mason economist Russ Roberts responds, “What she seems to be saying is that because CARS wasn’t intended to affect charities, the effect has to be negligible. So unintended consequences don’t exist. Beautiful.”

The only thing of beauty is the end of this program.


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