Cash for Clunkers: It's Still a Clunker

Regular readers of this site will know that I am no leaping cheerleader of Cash for Clunkers, the government's auto revitalization program that gives away up to $4500 for new cars. We shouldn't be paying people do destroy working capital, it's rotten for used-car dealerships (who actually do something with the old cars besides junk their engine) and its apparent popularity is, I think, the product of historic pent-up demand for cars, which means we're paying people thousands of dollars for cars they might have bought later this year anyway.

Today I've stumbled upon two pieces of information that make me proud of trying to sound the alarm of C4C -- but also a bit sad for those billions of taxpayer dollars.

1) How environmental, again?
The environmental bonafides of this program have long been under question. Even though the program requires buyers to update to a more efficient vehicle, it's much easier to qualify for a rebate if you're buying an SUV than a car. On the one hand, a small miles-per-gallon upgrade among hoggish SUVs will make a bigger net difference in emissions than a medium-sized MPG upgrade improvement among cars that are already fuel efficient. On the other hand, the program seemed stacked to encourage more SUV purchases.

The first figures from the government on C4C-purchased cars surprised me. It said that the most popular new cars were almost exclusively small ones like the Ford Focus and Toyota Prius. But via invaluable commenter "ed," I've stumbled upon this report from Edmunds.com, which placed two trucks in the top 10 most popular vehicle list and named that crossover SUV Ford Escape the number one purchase.

2) Suffer the charities.
I always suspected that C4C would be bad for used car dealerships (no surprise, it is), but I forgot to think about the charities. Sounds like I'm not the only one:

Volunteers of America and other charities that receive tens of thousands of cars each year said such donations have quickly fallen up to 12 percent -- and fear a 25 percent drop eventually, or over $100 million -- as owners rush to trade gas guzzlers for new fuel-efficient models while federal rebates last.

So look, not to be all nah-nah about it, because I understand that the government has a legitimate interest in not only boosting car sales but also perpetuating the idea that consumer demand is on the rebound, but I still think Cash for Clunkers is getting too much praise in the media. Also, consumer spending still stinks overall. In fact, non-auto consumer spending was down in July at a 0.6 percent clip after rising by 0.6 percent in June. Could Cash for Clunkers actually be hurting non-auto consumption? Meh, I won't go there. Not yet at least.

This article available online at:

http://www.theatlantic.com/business/archive/2009/08/cash-for-clunkers-its-still-a-clunker/23401/