“Cash for clunkers” found less than optimal

The 2009 “cash for clunkers” program, formally known as the Car Allowance Rebate System (CARS), was, unsurprisingly, less than a resounding success, at least as far as job creation goes. The cost of job created by CARS was $1.4 million, much higher than policy alternatives such as increasing aid to the unemployed ($95,000 per job created) or reducing payroll taxes for employers who add jobs ($80,000 per job), according to a new paper and policy brief by Ted Gayer and Emily Parker at the Brookings Institution.

CARS spent $2.85 billion to give an average rebate of $4,200 on 678,000 clunkers traded in. Gayer and Parker write that the CARS boosted vehicle sales by 380,000 but that most of those sales would have occurred anyway during subsequent months.

Vehicles traded in included 109,000 passenger cars, 451,000 category 1 trucks, 117,000 category 2 trucks, and 8,000 category 3 trucks. Vehicles purchased included 404,000 passenger cars, 232,000 category 1 trucks, 47,000 category 2 trucks, and 2,000 category 3 trucks.

Toyota had the largest share of new vehicles purchased under the program at 19.4%. GM was second at 17.6%, followed by Ford at 14.4% and Honda at 13%. Other manufacturers had less than 10% share.

Brookings summarizes the findings by saying, “…the Car Allowance Rebate System (CARS) or “cash for clunkers” program, launched during the height of the recession with the intention of stimulating the economy, creating jobs, and reducing emissions, was actually far more expensive per job created than alternative fiscal stimulus programs.” Gayer and Parker write that they would not recommend repeating the program in a future economic recession because there better policy proposals to stimulate the automobile market and reduce carbon emissions.

But according to Politico, the National Automobile Dealers Association claims the Brookings study ignored the boost to state and local tax receipts provided by the program and that publicity about the program drove additional sales to people not qualifying for rebates. “There’s no question 'cash for clunkers' was the best Obama administration program to date,” Politico quotes association spokesperson Bailey Wood as saying.

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