The Lie Behind 'Cash for Clunkers'

I read an interesting op-ed piece in the Wall Street Journal on Monday concerning the vaunted 'cash for clunkers' program.

Of course, the big news is that the program is running out of funding. Oh my! Too much success!

Well, not really.

Jeremy Anwyl, CEO of Edmunds.com, the auto valuation website, wrote the editorial, and concluded that all this $1B government program has done is front-end loaded trade-ins which would have naturally occurred anyway.

Thus, in contrast to my 7th grade civic teacher, now Transportation Secretary, Ray LaHood, exclaiming that this was "the stimulus program that has worked better than any other stimulus program that was conceived," we'd better hope other programs don't "work" this well.

In effect, taxpayers have subsidized owners of older cars, most of whom would have bought new cars anyway, to the tune of $1B.

Great. More waste of your and my tax money to incent people do something they had already intended to do.

As Mr. Anwyl notes, despite adding another $2B in funding, it's likely that, as the normal attrition rate of older cars continues, their supply will eventually ebb, and so, too, will the program's "success."

I've wondered about other aspects of the trade-in incentive program.

For example, people who own such old cars typically don't make a lot of money, and are quite likely even financially strapped. As other pundits have speculated, aren't we forcing them to load up on debt by incenting them to trade their old car in for one on which they are highly likely to have a medium-term loan?

Will we be reading about those defaulted car payments, and associated repossessions, in twelve months or so?

Plus, as stimuli go, does anyone expect someone driving an old beater to trade up into a really high-priced, profitable car? These sales are probably not what car assemblers are hoping for as their salvation. I'd be curious to see the statistics on how many replacement vehicles bought under this program include options and extras.

Certainly, it's hard to see this program as a significant remedy for either consumer spending or the auto sector over anything but a few weeks during the summer of this year.