Don’t Bring Back Cash for Clunkers Because of COVID-19

It was a terrible program in 2009, and it will be even worse during a pandemic.

Source: Creative Commons.
Source: Creative Commons.

The automotive industry is pushing legislators to incentivize Americans to buy new cars — even though the last time we did that, it did little to stimulate the economy or curb emissions, and a whole lot to exacerbate poverty.

In addition to requesting a huge economic relief package for themselves, automakers are pushing Congress to consider reprising the “Cash for Clunkers” program from 2009 to get their customers back into dealerships. The controversial initiative, also known as the Car Allowance Rebate System or simply CARS, offered between $3,500 and $4,500 to people who traded in a sufficiently polluting old car for a sufficiently green new one. The more the customer cleaned up her carbon footprint during her trade-in, the bigger the check she’d get — and the more people took advantage of the program, the authors of the bill argued, the quicker the U.S. economy would recover from the 2009 financial crash.

But countless studies have shown that the Cash for Clunkers program accomplished neither its environmental nor economic goals — and it helped feed a new economic crisis as poor Americans were incentivized to take on more debt.

An economic “stimulus” that requires poor Americans to carry devastating long-term loan obligations on cars with little resale value in exchange for an initial discount is an unconscionable use of government funds — especially in the midst of a pandemic that experts predict will put tens of millions of more Americans into poverty. And if our goal is stimulate the economy, help the environment, and also improve social and literal mobility of vulnerable people, there are far better ways, i.e. making sustainable transportation safer, cheaper and more convenient.

But first, let’s quash the idea that Cash for Clunkers was ever a good idea for America — or that it would be a good idea now. Here are three reasons this program should never be repeated.

It didn’t increase auto sales

Let’s get the biggest myth out of the way first: no, Cash for Clunkers did not help save the auto industry. In fact, some argue it actually lost Big Auto as much as $5 billion.

Make no mistake: the CARS program put more motor vehicles on the road in 2009 than consumers probably would have bought without it. But the terms of the subsidy required customers to buy greener cars than they would have without an available rebate — and because green cars are usually smaller and cheaper, consumers generally skipped the SUVs and went for the sedans.

The average participant in the program spent $7,600 less on his new ride than he otherwise would have — and that’s before you factor in the government rebate. Moreover, about 60 percent of CARS program participants reported that they would have bought a new car that year regardless of the rebate, so the program didn’t exactly open up a vast untapped customer base that wouldn’t have existed without the rebate. To the extent that it did, those new customers’ dollars were negated by the fact that customers bought cheaper cars overall.

Now, there are good reasons to celebrate getting monster trucks off our roads — because big cars are more likely to kill pedestrians in a crash. But the official justification for the Cash for Clunkers program had nothing to do with safety, and it failed utterly to meet most of the economic goals that politicians promised.

(Side note: in the end, Cash for Clunkers probably wasn’t good for safety, either, regardless of how many pick-up trucks weren’t bought in 2009 because of the program — because pedestrian fatalities still rose the next four years in a row. We’ll probably never have a real accounting of how many lives were lost specifically because the government paid people to buy more cars, but it’s a pretty good guess that CARS had something to do with it, because exposure to more cars on the road is itself also a predictor of pedestrian fatality rates, in addition to vehicle size. )

It barely made a dent in climate change

Almost as soon as Cash for Clunkers was announced, climate scientists expressed skepticism that helping people buy cars — which, then and now, were a leading cause of U.S. emissions — could possibly be the best way to curb global warming, even if those cars were slightly cleaner. They were right.

When all was said and done, the CARS program only reduced the average fuel economy of all American cars on the road by 0.65 miles per gallon. That’s in part because the program set the bar so low for fuel efficiency: the “green” cars that replaced the clunkers only needed to beat the fuel efficiency of the owner’s former vehicle by as little as four miles per gallon, meaning that customers could get a $3,500 rebate for switching from an 18 mpg pickup to a 22 mpg SUV.

The immediate carbon impacts of the program were even more dubious. A University of Michigan study estimated that the program “had a one-time effect of preventing 4.4 million metric tons of CO2-equivalent emissions, about 0.4 percent of US annual light-duty vehicle emissions,” when researchers factored in the carbon impact of disposing of the old vehicles. And even that puny dent in our global warming trajectory came at the cost of as much as $301 per ton — significantly more than cost-efficient carbon reduction programs like the renewable fuel standard program and the proposed 2009 cap and trade program, which was passed by the House but rejected by the Senate.

Most pointedly: fuel emissions still rose during 2009, despite a historic number of newer, more fuel efficient cars on the road. Some researchers speculate that it’s because all those “green” drivers may have just driven more, because they were paying less at the pump.

It helped the rich – and was an albatross to poorer families

If the economic “benefits” of Cash for Clunkers was debatable for the country at large, they were an indisputable disaster for individual families – unless those families happened to have maintained their wealth despite a historic global recession.

There was no income restriction on who could participate the 2009 CARS program, and vehicles valued at up to $45,000 were eligible for the rebate. (If you aren’t a car person: $45,000 in 2009 was enough to buy a Hummer at MSRP, though that particular gas guzzler wouldn’t have qualified for the program.) That was a boon to wealthier households, who got a discount they didn’t really need on both cheaper and more expensive models.

But for poor families, the promise of an up-front $4,500 rebate was just enough of an incentive to entice buyers into taking on loan obligations on cars they couldn’t really afford. Low-credit Cash for Clunkers buyers defaulted on their vehicle payments and experienced repossession at more than double the average rate for the automotive industry.

Moreover, fuel-efficient used cars weren’t eligible for the Cash for Clunkers program — nor was there such a thing as a Cash for Fixing-Up-Your-Already-Fuel-Efficient-Toyota. That meant that the CARS program provided a powerful short-term incentive to for drivers with low credit to just buy new cars — a swiftly depreciating asset with astonishingly low resale value after just a few years of driving — and take on large, often sub-prime loans to do it. That’s not a gift, even if it might get low-income people around for a couple years before the financial hangover really sets in. That’s a curse.

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