First, the math.

Have you seen any article that puts in context how many consumers are the beneficiaries of the Cash For Clunkers program? I haven’t. And I know that most of us feel our eyes glaze over when we think about billions.

You may be surprised to learn that all the ink (digital and otherwise) and air time (TV-delivered and otherwise) has masked an important fact: the initial $1 billion helped less than 1 percent of the U.S. population buy a vehicle. We’ll get to what they bought in a minute.

$1 billion / $3500 = 286,000
$1 billion / $4500 = 222,000
Average: 254,000
254,000 / US population (307,000,000) * 100 = 0.08 percent

Even though the percentages are small, the program was reportedly a shot in the arm to inventory-heavy new car dealers, clearing out stale inventory. However, what are the ethics involved, when you consider that most “cars” sold in the U.S. are used?

The Bureau of Transportation Statistics notes that in 2008, Americans bought 49,725,000 vehicles. Only 22 percent were new vehicles. Yes, 3-out-of-4 “cars” bought in the U.S. are used. (Only four percent are leased.)

I mentioned in my prior article on C4C that this program is hurting more Americans than it helps because the market for used cars is a larger market. Slocum made this observation over at TheAtlantic:

It’s effectively the automotive equivalent of the government outbidding low-income people for affordable older houses and then bulldozing them to stimulate the construction industry. Seen in this light, it’s not just a stupid program, it’s actually evil.

It’s a middle-class/upper-middle class program, at the expense of the majority of the country’s car owners and buyers.

In addition, Derek Thompson (The Atlantic) noted on 31 July that

The median age of cars hit a record high of 9.4 in March, 2009. Our fleet turnover (that is total registered vehicles divided by annual sales rate) is 40 percent higher than at any time in the last half century. At the rate we’re currently buying, each car would have to last about 25 years.

The federal government — that is, you and I and all of our descendants for a generation or two, remember, we are handing out money that we have to borrow from China et al — have given a relatively small handful of adults $3500-$4500 and said, “Go buy that car you’ve been pining for. Here’s some cash, you won’t have to (directly) borrow as much money as you thought you would.”

Second, what cars are we buying?

One thing that the program has done is stimulate demand for new trucks. According to Edmunds, the Ford F-150 and Chevrolet Silverado are on the top 10 “purchased” list. What’s noticeably missing? Hybrids:

The Edmunds list of top new cars purchased in Cash for Clunkers deals does not include the all-new 2010 Honda Insight sedan (41.5 mpg city/highway). The third-generation Toyota Prius hybrid sedan (49.5 mpg) is 17th on the list, at 2.2 percent.

This really shouldn’t surprise anyone. The number one “car” sold in the US is the Ford F-150 series of trucks. That didn’t change in the first six months of 2009, and the F150 is well on its way to its “28th consecutive year as the best-selling vehicle in the U.S.” In fact, two of the top five selling “cars” in this country are trucks — real trucks, not mini-vans or SUV which are “trucks” by federal definition but “cars” in the average person’s mind:

  1. Ford F-150 series: 179,632 units, starting price $22,540
  2. Toyota Camry: 150,242 units, starting price $20,145
  3. Chevrolet Silverado: 149,949 units, starting price $20,370
  4. Honda Accord: 131,043 units, starting price $21,615
  5. Toyota Corolla: 121,643 units, starting price $16,100

Based on these data, I supposed we should thank the stars for small favors, as the Ford F150 series is number five (and the Silverado, number seven) in the C4C program (Edmunds).

Third, did this program really stimulate demand? I say nope.

The Economist noted in its 8 August edition that

… the clutch of data now available for July …[shows that] car sales jumped 15 percent to an annualised 11.2 million. (page 25)

At that rate, 2009 sales would bump 2008 sales by almost 3 percent. These data suggest that consumer confidence might be returning, coupled with low interest rates and, perhaps, bank willingness to lend. These data the Economist cited were for second quarter 2009, which, for the calendar-challenged, ended in June. The Cash4Clunkers program kicked off at the end of July. Let me repeat: those data are pre-C4C stimulus (pdf).

This program will not stimulate long-term demand for cars. Instead, the data from The Economist and The Atlantic show that it has helped relieve pent-up demand in a small population. (Or stimulated a little demand in the “I’m gonna get mine” crowd.) The first billion helped sell the equivalent of about 2 percent of all new vehicles sold in in 2008, vehicles that may have sold anyway, based on second quarter sales increase.

Do not trust the C4C data from the feds – or from news organizations that push federal data. Because your government is masking the sales of trucks in the C4C program by breaking out each “type” of F150 or Silverado.

And context, always look for context.

This column first appeared at Newsvine

KATHY GILL, Technology Policy Analyst
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Copyright 2009 The Moderate Voice
  • Only 24% of the U.S. population is under 18 years of age. So the first “adjusted” stat is this:

    254,000 / US adult population (233,000,000) * 100 = 0.11 percent

    Another 13% is 65 or older.

    254,000 / US adult population aged 18-64 (193,000,000) * 100 = 0.13 percent

  • mikkel

    I appreciate this analysis but I have a quibble with the statement “The Cash4Clunkers program kicked off at the end of July. Let me repeat: those data are pre-C4C stimulus.”

    There were dealers running ads and selling cars at the beginning of July. Maybe even the end of June. They were told to sell the stuff first and cross the Ts second. That’s why there was so much confusion about whether the program needed to end — because they had close to more commitments than the program was designed for before the program was even officially open!

  • Hi, Mikkel — point taken. The Economist data ended in June, unless some miracle has occurred and the government has real-time sales data and The Economist writer was able to work through everything before 6 August (when the article ran online – I’m not sure when it actually ‘went to press’ but likely before that date).

    • mikkel

      The July sales data was released by August 6; it’s actually one of the first reports each month (simply because it’s such a straightforward release).

      The jump was credited to the program, and now demand is starting to wane again.

  • Ah. Good to know -thanks! The Economist article wasn’t clear. Do you have a link?

    The fact that this jump came in July, then, makes the case even more strongly that what we’re looking at is pent-up demand. (TheAtlantic contention.) It also makes June data suspect (postpone making the purchase if you think you might get a check, so to speak).

  • adelinesdad

    The cash for clunkers program is unsupportable, in my opinion, as I’ve written about here: http://sovereignmind.wordpress.com/2009/08/09/cash-for-clunkers-simply-unsupportable/

    I understand the need to use tax policy to counter externalities in the market. However, this policy, and others like it (such as the tax credit to first-time home buyers) goes way over the line. If we’re trying to increase fuel efficiency or decrease emissions, the logical way to do it would be a gas tax (with a corresponding tax credit to make it revenue neutral). That would provide an incentive to decrease fuel consumption, but would leave the choice of how to do that up to the consumer. Some may choose to drive less. Some may buy a different car (which may be used or new) that gets better mileage, or maybe even buy a bike instead. Some would car-pool. The opportunity to take advantage of the incentive would be open to all, rather than open to only those who happen to be in a position to buy a new car.

    But since increasing the gas tax is politically problematic, the politicians implement this impotent, unfair, and fiscally irresponsible plan which is an easier sell since it appears to the average consumer to be “free money”. But guess what. If you didn’t buy a new car in the past few weeks, you just helped pay for someone else’s brand-spankin’ new car. That feels great, doesn’t it, especially if you already have a fuel-efficient car? And if you’re in the market for a used car and are having trouble finding something in your price range, you can thank this program for that too. There is no such thing as “free money”.

  • jwhenry1908

    For working trucks the rule is not based on the fuel efficieny. As long as it is manufactured before 2001 they all qualify
    but cannot be older than 25 years old..

    Henry
    Blogger
    http://www.cashforclunkersfacts.info
    http://www.cashforclunkersfacts.info

  • kcampese

    This program is hurting many industries including used car dealers, auto repair shops, auto parts stores and car donation charities.