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You are here: Home / Economy / Cash For Clunkers Benefits Few, Stimulates Truck Sales

Cash For Clunkers Benefits Few, Stimulates Truck Sales

August 18, 2009 by KATHY GILL, Technology Policy Analyst 8 Comments

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

Avatar
KATHY GILL, Technology Policy Analyst

Known for gnawing at complex questions like a terrier with a bone. Digital evangelist, writer, teacher. Transplanted Southerner; teach newbies to ride motorcycles! @kegill, wiredpen.com

wiredpen.com

Filed Under: Economy Tagged With: Cash for Clunkers, federal debt, Stimulus

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