Cash for Clunkers

Cash for Clunkers was the informal name for the U.S. federal Car Allowance Rebate System (CARS), a program that ran from July 1 to August 24, 2009. It offered vehicle owners $3,500 or $4,500 credits toward the purchase of a new, more fuel-efficient vehicle when they traded in an older, lower-mileage vehicle. The size of the credit depended on the fuel economy improvement between the traded vehicle and the new purchase. Congress initially appropriated $1 billion for the program, which was exhausted within 30 days due to overwhelming demand. An additional $2 billion was approved, bringing the total to $3 billion, which was also depleted before the November 1 deadline, ending the program early on August 24.

Eligibility Rules Were Specific and Strictly Enforced

To qualify as a clunker, the trade-in vehicle had to have been continuously owned and insured by the same person for at least one year before the trade-in date. It had to be in drivable condition, carry no salvage title, and have a combined city/highway fuel economy rating of 18 miles per gallon or less, the lowest tier of fuel efficiency. The dealer was required to disable the engine of every traded vehicle using a sodium silicate solution before sending it to a junkyard. This requirement was designed to prevent traded vehicles from re-entering the used car market.

The Program Hit Its Sales Numbers but Largely Borrowed from Future Demand

New vehicle sales rose 14% in July 2009 and 28% in August 2009 compared to the prior year. The Ford Explorer 4WD, Ford F-150, and Jeep Grand Cherokee topped the list of surrendered vehicles. The Toyota Camry was the single most popular new vehicle purchased. A total of 677,081 trade-ins were processed, with the average traded vehicle getting 15.8 miles per gallon and the average new purchase getting 24.9 miles per gallon, a 58% improvement in fuel economy.

However, the Brookings Institution concluded that the $2.85 billion in vouchers produced only a small, short-lived effect on GDP, essentially shifting purchases forward from the next two quarters. Resources for the Future found that roughly 45% of the rebate spending went to consumers who would have bought a new vehicle regardless of the program.

The Cost-Effectiveness Was Controversial

Edmunds reported the program cost taxpayers approximately $24,000 per vehicle sold, noting that only about 125,000 of the roughly 690,000 vehicle sales were truly incremental, meaning buyers who would not have purchased without the incentive. The White House framed the program as effective demand stimulus for an industry that had shed 38% of sales between November 2007 and June 2009. Princeton economist Alan Blinder, who popularized the cash-for-clunkers concept in a July 2008 New York Times op-ed, argued the program served three purposes: economic stimulus, reduced oil dependence, and inequality reduction.

Sources:
https://www.ebsco.com/research-starters/science/cash-clunkers
https://www.brookings.edu/wp-content/uploads/2016/06/cash_for_clunkers_evaluation_paper_gayer.pdf
https://legalclarity.org/what-was-the-cash-for-clunkers-program/
https://obamawhitehouse.archives.gov/administration/eop/cea/CarAllowanceRebateSystem/