Why Did Cash for Clunkers Run Out of Cash?

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In the end, it seems, there were too many clunkers and too little cash. Cash for Clunkers, a government rebate for exchanging older autos for more fuel-efficient vehicles, bit the dust last night, as it burned through $1 billion in less than a week. Why did this happen?


You'd be smart to point to historic pent-up demand for cars. The median age of cars hit a record high of 9.4 in March, 2009. Our fleet turnover (that is total registered vehicles divided by annual sales rate) is 40 percent higher than at any time in the last half century. At the rate we're currently buying, each car would have to last about 25 years.

Simply stated: Auto demand has nowhere to go but up, even if we don't hit the car-buying levels of the late-90s and 2000s. And when the government sweetens historic demand with cash guarantees, it's easy to burn through $1 billion in a week.
registeredvehicles.png Update: If you're not sure what this whole Cash for Clunkers thing is in the first place, check out my FAQ, which I inauspiciously wrote about three hours before the program was sapped of cash.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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