By Stephen Markley on August 11, 2009
That seems to be the overarching lesson from the success of the Cash for Clunkers program, which has delivered on all its intentions, from spurring economic activity to replacing old, inefficient vehicles with new fuel-efficient models.
One of the loudest complaints is that the Car Allowance Rebate System is merely compressing sales from people who would be buying over the next few months, shoving all those car sales into July and August. Analysts like George Augustaitis from the auto-consulting firm CSM Worldwide predict a precipitous drop-off after CARS ends, followed by weak sales for months.
While it remains to be seen if this is the case, this analysis misses the point that one of Clunkers’ main goals was to nudge car buyers toward fuel-efficient vehicles, and in that regard it’s been extremely successful. By the end of the program, 750,000 vehicles will have been replaced with ones that get around 5-10 miles more per gallon if current trends continue. It seems unlikely that consumers would have made the same environmentally conscious leap without CARS, especially with gas prices at reasonable levels.
Then you have used-car dealers and automotive recyclers simultaneously complaining that CARS is robbing their respective businesses. Used-car dealers say the government incentive is leading people to buy new cars and scrap their perfectly good (albeit gas-guzzling) old ones, while the Automotive Recyclers Association gripes that the engines being destroyed through the program are the most valuable parts of the scrapped vehicles, accounting for 30% to 35% of the revenue from each car.
Yet it’s completely ridiculous to say that the majority of the 750,000 vehicles would have been scrapped, thus ending up as profit for automotive recyclers. Many of these cars would have simply gone to used dealer lots over the course of several months or years, according to those CSM analysts. Therefore, isn’t the $200 they earned from scrapping the frame of the car and the $300 from other parts simply an unexpected boost during a tough economic time?
Bob Cole of North Shore Towing and Recycling in Evanston, Ill., certainly thinks so. He told the Chicago Tribune, “I was pretty proactive in seeing that this could be a good thing. It’s good for me and it’s good for everybody.”
Cash for Clunkers has even spurred economic activity for manufacturers of sodium silicate, the chemical used to kill engines. 1st Ayd Corp. of Illinois has packaged and supplied sodium silicate for roughly 600 cars, according to general manager Joe Sostarics — sales that never would have happened without CARS.
Of course, that fact didn’t stop him from telling the Tribune that once CARS ends, “It’s going to end the sales for sodium silicate.”
Guess there’s no making everyone happy.
Where Clunkers Go to Die (The Chicago Tribune)