Boom Shocka Locka

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August 6, 2009

Why Cash for Clunkers is, well....a clunker.

On the surface, Cash for Clunkers seems like a great idea. Get some money flowing into the economy through big purchases, help out car companies, and save the environment. However, its biggest accomplishment may be scoring political points without doing much for car companies or the environment.

First, economically, CfC is terribly shortsighted. These clunkers that are being traded in would likely have been traded in within five years time anyways. So, instead of spreading those sales out, we spent $3 billion dollars and crammed them all within a couple of weeks (or however the extra $2 billion lasts) thus cannibalizing future steady sales rates. With the industry moving towards greater mileage standards anyways (if it wants to survive), people would have bought higher mileage cars to replace their clunkers, except they wouldn’t have bought them quite yet, all at once, or necessarily new.

The problem environmentally is that making hundreds of thousands of new cars has an extremely high impact on the environment. The mileage requirements set in order for a new car to qualify for CfC aren’t stringent enough to offset the huge footprint of manufacturing a new car within a reasonable amount of time. Also, while yes, it is nice to get gas guzzlers off the road, most often it is better to run your current car into the ground. Instead, CfC influenced consumers to purchase new cars (possibly before a replacement was necessary) when a used car would be the obvious eco-friendly choice.

Overall, Cash for Clunkers was short-sighted economically, and environmentally, was mainly greenwashing. However, congresspeople who voted for it can go back to their districts and visit their constituents who will be in a cheery high from the effects of consumption.

The Economist: Congress just buying people cars now
The Washington Post: When the ‘Clunker’ is Greener