The CARS (Car Allowance Rebate System) program commonly referred to as the cash for clunkers program was established by the US federal government in 2009. The objective of the program was two pronged. On one hand, the US government wanted to increase automotive sales so as to jump start the economy and on the other hand the government wanted to protect the environment by getting rid of harmful gas guzzlers.
Now that the program is over, it is only fair to look back in retrospect and ponder over a few questions namely: How much did the program cost per automobile and should this program be repeated at a later point in time?
To answer the first question, it is important to know how many vehicles were sold during the entire duration of the program. In addition to knowing how many vehicles were sold, it is equally important to determine the incremental sales. Incremental sales basically refer to the sales that resulted from the program as opposed to the sales that would have happened regardless of the program. The last variable needed to compute the cost per automobile is the total cost of the entire program. According to Edmunds.com, the premier source for online automotive information, 690,000 vehicles were sold during the entire duration of the cash for clunkers program. 125,000 of the sales were incremental. The entire program cost the Government $3 Billion. Therefore, $3 Billion divided by 125,000 vehicles yields $24,000 per vehicle. The figure derived from the calculation refers to how much the program cost per automobile.
In order to answer the second question exhaustively and establish whether the program should be repeated, it is important to answer the following question. Was this the best method out of all the alternative methods the US Government had on its plate? Before going any further, I acknowledge the fact that providing an answer to this question is tricky in the sense that only an insider can be able to answer this question. Having knowledge of the alternative methods that constitutes the opportunity set can enable us to pinpoint quantitatively that the cash for clunkers program was the best program and should definitely be repeated. Calculating the opportunity cost in this case is difficult because we cannot calculate the total cost of the alternative methods. We only know the cost of the program. As a result, a quantitative comparison of the cost is next to impossible. Therefore, response to the above question "Should the program be repeated" will be limited to a qualitative analysis of the program.
A key component of the qualitative analysis is determining to what extent the cash for clunkers program was successful in accomplishing its set objectives. If the program failed to meet its objectives, then justification for a repeat performance will be complicated by failure. In other words, the US Government will have a gigantic task proving to congress that such a program is worth the time, money and effort. As stated earlier, one of the objectives was to increase automotive sales so as to jumpstart the economy. Clearly, the sales increased alright as evidenced by the 125,000 incremental sales of vehicles. However, the economy is still not as strong as expected. The government had hoped that an increase in sales would trigger a chain reaction that would culminate in an increase in jobs. The unemployment rate is at 10%. This goes to show that the program was partially successful in meeting its objectives. However, more work is needed and more alternatives should be considered if the overall goal is to improve the economy.
In as far as the environmental objective is concerned; evidence of success will more than likely be completely visible in a few years. At this point in time, it is still too early to tell the impact of the program on the environment. However, certain key pointers suggest that the program will prove to be beneficial to the environment in the long run. Cars impact the environment through the emission rates of harmful gases to the atmosphere. As a result of stringent emission regulations on new vehicles, properly functioning control systems and lower per mile emission rates in new vehicles, newer cars have less negative impact on the environment as opposed to older cars. In the "Cash for Clunkers" program, older cars were traded in for newer fuel efficient cars. Therefore, as a result of the decrease in older cars, one can logically come to the conclusion that the negative impact on the environment can be minimized through getting rid of older cars.
From a personal perspective, only time will tell whether or not the program should be repeated. The state of the economy, the long term impact on the economy, long term effect on the environment, overall cost and purse string considerations are all factors to be considered. However, time holds the answer. Only time will tell.
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