The Car Allowance Rebate System (CARS), better known as the “Cash-For-Clunkers” program, was signed into law by President Obama on June 24, 2009. This initiative was designed as a stimulus package to encourage spending during a weak economic period. The core idea was to motivate households and businesses to make purchases sooner rather than later, injecting much-needed demand into the economy when resources were underutilized.
However, the Clunker Car Program faced its share of criticism. Skeptics argued that the program’s impact would be minimal. They believed that most of the car purchases made under the program were simply accelerated purchases – people who were planning to buy a car in the near future would just buy it sooner to take advantage of the rebates. This “pull-forward” effect, critics claimed, meant the program wasn’t creating new demand, just shifting it. Edmunds.com, a well-known automotive industry website, was among the voices highlighting this short-term pull-forward view.
Countering this perspective, the Council of Economic Advisers (CEA) presented an economic analysis on September 10th of that year. Their report suggested that a significant portion of the sales generated by the CARS program were not just pulled forward from the immediate future. Instead, they argued that these sales represented a real increase in demand that would have otherwise occurred much later. This boost in demand was crucial at a time when the economy was struggling.
With several months of sales data available after the Clunker Car Program ended in August 2009, it became possible to assess the program’s actual impact. By examining sales figures from September 2009 through March 2010, a clearer picture emerged.
Edmunds.com had predicted a slow pace of sales for the last quarter of 2009. They forecasted an annual rate of about 10.5 million light motor vehicle sales for November and December, even suggesting that without the CARS program, sales might have been slightly higher at 10.8 million. However, the actual sales data revealed a stronger performance. The pace of sales in November and December reached approximately 11.0 million units, exceeding Edmunds’ forecast. Furthermore, strong sales figures continued into March, defying Edmunds’ pessimistic outlook. In fact, for the seven months following the program’s end, the average sales pace was 10.7 million units annually. This was notably higher than the 9.6 million pace in the three months preceding the program and significantly stronger than pre-CARS program forecasts from private analysts.
Further evidence supporting the program’s effectiveness comes from a survey conducted by the Department of Transportation as part of the CARS initiative. Purchasers were asked when they would have otherwise sold, traded in, or disposed of their old vehicle. The average timeframe reported was 2.87 years – considerably longer than the few months suggested by critics of the program. This data indicates that the Clunker Car Program successfully motivated people who typically delay new car purchases until their old vehicles are heavily worn. Stimulating spending from this group of consumers is considered an effective approach to counteracting temporary drops in overall economic demand.
In conclusion, the data suggests that the Clunker Car Program was more than just a temporary shift in car sales. It appears to have genuinely boosted demand in the automotive sector and the broader economy at a critical time. The program effectively encouraged consumers to purchase new vehicles, contributing to economic recovery efforts.
