Edmunds.com Estimates Real Cash For Clunkers Cost, Gets White House Smackdown

Edmunds.com crunched some numbers, and came to the conclusion that the federal Cash for Clunkers program was not a terribly effective use of taxpayer money. They argue that the bulk of rebates went to consumers who were going to buy cars anyway. The White House, however, begs to differ. So how did the Obama administration respond? With a snarky blog post.

The Edmunds analysis showed that while purchasers of new cars received an average rebate of $1,667, the real cost to taxpayers is $24,000 per vehicle sold. They arrived at this figure by dividing the total cost of the program by the number of cars their researchers concluded were purchased solely because of the CARS program.

Nearly 690,000 vehicles were sold during the Cash for Clunkers program, officially known as CARS, but Edmunds.com analysts calculated that only 125,000 of the sales were incremental. The rest of the sales would have happened anyway, regardless of the existence of the program.

The study got plenty of media attention. Enough to make the social media office at the White House take notice, and defend their program. And blog about it.

The Edmunds analysis is based on two implausible assumptions:

1. The Edmunds’ analysis rests on the assumption that the market for cars that didn’t qualify for Cash for Clunkers was completely unaffected by this program.

2. Edmunds also ignores the beneficial impact that the program will have on 4th Quarter GDP because automakers have ramped up their production to rebuild their depleted inventories.

The Obama administration argues that many of the vehicles purchased during the CARS rebate period weren’t eligible for the program, but were purchased after publicity surrounding Cash for Clunkers coaxed Americans back into car dealerships.

By the way, if you’re curious how the CARS program affected vehicle sales, here’s a Bureau of Economic Analysis graph showing sales trends for the last decade:



Was Cash For Clunkers worthwhile, or did it simply move planned auto purchases up by a few months or even a few years? Let’s take a look at this same graph at the same time next year to see the program’s real effects on the economy and the auto industry.

Cash for Clunkers Results Finally In: Taxpayers Paid $24,000 per Vehicle Sold, Reports Edmunds.com [Press Release]
Economic Analysis of the Car Allowance Rebate System (“Cash for Clunkers”) [Council of Economic Advisors]
Busy Covering Car Sales on Mars, Edmunds.com Gets It Wrong (Again) on Cash for Clunkers [Official White House Blog] (Thanks, Jeff!)

(Photo: kodiax2)

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  1. hypochondriac says:

    My opinion is that it mostly moved purchases up. Fewer people who had no plans bought cars just because of the rebate

    • MentallyRetired says:

      @hypochondriac: If it mostly moved purchases up, you would expect sales after Cash for Clunkers ended to plummet right? That didn’t happen in September, and we’ll see next week what happened in October (earlier this week GM announced that they expect their October sales to be up year over year)

      • Unsolicited Advice says:

        @MentallyRetired:

        What? SAAR for vehicles dropped to 9-something in September. Do you have facts, or is that analysis by hope?

        CARS had a very clear negative impact on the September sales month.

        • MentallyRetired says:

          @Unsolicited Advice: 9 automakers posted year over year sales increases September 09 over September 08. We’ll see next week how October was, but GM has already publicly announced this week that it expects sales to be up year over year for October.

  2. Yebo says:

    I’m still waiting for Cash for Chest Hair. I’ll be rich I tells ya

  3. FatLynn says:

    I suspect Edmunds is right on this one. People do not go out and buy a whole new car because they are getting a tax credit that may not even be that much more than the trade-in value of their car.

  4. NICU says:

    Cash for clunkers took money from tax payers and gave it to car companies (some of which already got bailouts).

    Cash for clunkers required that traded in cars be destroyed – so it negatively impacted used car sales.

    Cash for clunkers did nothing positive for Americans, it took money from me and bought vehicles for people who are well off enough to afford a new car purchase, while taking working viable cars out of the used car market. It was a temporary fake increase in sales that will only plummet back to the levels they should be at considering the state of the economy.

    • sir_pantsalot says:

      @NICU: “it took money from me and bought vehicles for people who are well off enough to afford a new car purchase”

      I agree with you except one thing. I have found it is easier to qualify to buy a new car than it is to buy a used car. I think we will see some of the people who purchased a car hurting real soon when they can’t afford the payments the dealerships got them into.

      • Im Just Saying says:

        @sir_pantsalot: I venture to guess that those people who are “well off enough to afford a new car” probably had more money taken from them than you did to pay for the program.

      • Naame says:

        @sir_pantsalot: I disagree. The banks are still being stingy with credit. They only gave loans to those that could afford them. If the future involves these consumers hurting it will not be because of “the payments the dealerships got them into.” It will be because they were able to afford it at the time with no problem, but struggle in the future due to job loss or having their pay dramatically decreased by their employer.

        • Adhominem says:

          @Naame: “The banks are still being stingy with credit. They only gave loans to those that could afford them.”

          I thought that we’re in this mess exactly because banks weren’t being stingy with credit?

          • Naame says:

            @Adhominem: That is part of it, but there is a much more to it than that. Also, being too stingy about credit can be just as destructive to an economy as being too flexible.

    • jamar0303 says:

      @NICU: Uh, I’m pretty sure they only required the engine destroyed. Everything else could be resold for all the government cares. And I will maintain that there are more than enough used cars to go around. It’s just that the US government likes to block access to a large part of them due to protectionism (example- older Nissan GT-Rs, widely available in Canada, barely available in the US).

      • FooSchnickens - Full of SCAR says:

        @jamar0303: Rendering the engine inoperable is only the first step. The CARS site makes it pretty clear that “These certifications, which are legally binding on the disposal facility, include a certification that the CARS trade-in vehicle will be crushed or shredded onsite within 180 days of receipt of the vehicle…”
        [www.cars.gov]

        Also, older Skylines can’t play in the US for several reasons, most of them being the same reasons that many US cars can’t play in foreign countries.

        • jamar0303 says:

          @FooSchnickens – Forklift Dirver Extraordinaire: And the bit about “salvage auctions” right below that?
          …and it’s far easier to bring US cars to foreign countries than it is to bring foreign-market cars to the US. Witness all the other cheap-ish Japanese imports to Canada (which has much looser rules on bringing in cars 15 years or older) due to the Japanese car inspection system basically harassing you for owning any car older than 3 years. In America you only have a handful of R33s due to someone submitting a couple of those for crash-testing. Maybe there wouldn’t have been any need for CARS if there were plenty of older cars to go around which could have got the same mileage (well, apart from the auto industry bailout bit).

  5. joecartoon22 says:

    in the end cash for clunkers was a way another way to bail out detroit because losing that many more jobs would’ve made that city ripe for chinese invasion

  6. Riff Raff says:

    I, like many others, was penalized for already having a fuel-efficient slush box (’94 Saturn SL2). Nevermind that in its last few years the car only achieved a max of 20MPG combined, a full half dozen less than it should have gotten.

    So, even though my replacement vehicle (2008 Mazda3 Hatch) is more fuel efficient than its predecessor, I didn’t get any help worth jack in buying it. No cash rebates, no low-interest loan. Nothing.

  7. FatLynn says:

    Was there originally supposed to be some type of environmental impact, as well? I seem to remember that a while back…

    • stormbird says:

      @FatLynn: Yep, the program was to take cars that pollute off the road. Whatever your opinion of global warming/climate change, the average car today produces 1/20 of the pollution that a car from 1970 did. There is the problem that new cars may pollute less but create lots of pollution to make. I’ve read reports that hybrids are going to end up being bigger polluters because 1) the batteries produce a lot of pollution during their manufacture and 2) you will need to replace them several times over the lifetime of the car.

      In terms of pollution, a turbo diesel has better mileage and doesn’t need several sets of batteries. It’s also possible to run them on biodiesel. The diesel engine was originally designed to run on peanut oil. Diesel produces less pollution (most of what you see out of the tailpipe is plain carbon) than gas or ethanol.

      The Cash For Clunkers program really didn’t make an environmental impact. To do that, the feds would have to stop taxing diesel at a far greater rate than gas (diesel is more common in Europe because the tax on gas is higher) and consider tax breaks for diesel vehicles.

  8. zarex42 says:

    It’s stunning that no one in politics seems to understand the “broken window fallacy”.

    Tax subsidies for destroying perfectly good cars is a disgusting display of ignorance.

    • Falcon5768 says:

      @zarex42: EXCEPT in many many cases these where not perfectly good cars.

      I would really venture to guess if your cart was “good” you really didnt give a shit about Cash for Clunkers. The people who got rid of their cars where driving pieces of shit to begin with.

    • Archangelo says:

      @zarex42: I have to agree with you — a disgusting display of ignorance. And a colossal waste of taxpayer dollars. I can tell from the nature of most posts around here that the majority of these folks don’t pay any taxes whatsoever, so they think that anything the government does that benefits them is good. Sadly, they are terribly mistaken. If the government gives to some it has to take from others. The only way some people will gain perspective is if a universal tax is implemented on all earned income, as well as all benefits received from the government. It should be a flat tax of no less than 10%. Once a punitive tax structure impacts everyone, then everyone will begin to understand responsibility and will be less inclined to demand the establishment or expansion of undue entitlements.

  9. Radoman says:

    Cash for Clunkers was a success by most people’s standards. The most popular car to trade in was a Jeep Cherokee that got 15MPG, and the most popular American car to buy was a Ford Focus that gets 33MPG. That’s a pretty significant fuel savings.

    If we all use less gas, gas costs us all less. How much money did people save who didn’t even buy cars, just as a residual effect of lower gas prices?

    Then, look at all the heavily polluting vehicles that were removed from the road. Permanently. How many tons of carbon emissions per year have we eliminated as a direct result of this program?

    You can argue that perhaps the car companies were the big winner’s here, but there were definitely substantial benefits to all Americans from this highly successful program.

    I’d call it one of Obama’s biggest domestic success stories so far…

    • Beef Supreme says:

      @Radoman:

      If that’s his biggest success…

    • TuxthePenguin says:

      @Radoman: As Harvey said, you forget the consumption of fuel and energy to produce and transport those new cars to the dealer, not to mention the cost to destroy the engines on those Jeeps and transport the carcass (like the pun?) to a junkyard or wherever they went.

      But lets assume EVERY trade in was from 15 to 33 mpg. The average American drives 12,000 miles a year, @ 15 mpg that’s 800 gallons. @ 33 it would be 364 gallons. That’s an improve of 54%… but even if gas is $3 a gallon, it would take 21 years to “save” the gas. ($24000 / 3 / 364). Sound like a great idea now?

    • Radoman says:

      @Radoman: The environmental cost of producing a new vehicle is a one time expense. When compared with the tons of carbon that will no longer be produced by every destroyed clunker now and in every year going forward, I think this is a significant net gain for the environment.

      Getting more than double an increase in fuel efficiency in your new car, as well as removing the old inefficient vehicle from the road permanently, is a huge bump in gas savings for you as well those down the purchasing line. Not only can you now drive around lots more for lots less gas in your new car, but you’ve eliminated the old gas guzzler from the road completely. Now no one else can go out and buy that old inefficient vehicle and use up too much gas.

      Simple supply and demand. You, as a new car consumer, use less gas. You don’t hand down the inefficiency, thus forcing more used car consumers to buy more fuel efficient used cars too. Because the inefficient ones were destroyed, and will no doubt be recycled and re-sold. The used car consumers use less gas too. Our nationwide supply of gas goes up. Our nationwide cost for gas goes down. It’s a cascading effect that we can continue to generate.

      Take a look at the huge spike in the graph on this very page for the automakers opinion on whether or not the CARS program was a success. HINT: Expect to see Cash for Clunkers 2 in the near future. Because every popular money making blockbuster has to have a sequel…

    • pot_roast says:

      @Radoman: “If we all use less gas, gas costs us all less.” Except that right now we have record low usage, record high supplies, record high oil supplies, OPEC has cut production, and oil prices are *still* going up.

      We get hosed anyway.

      I was upset that the CFC plan didn’t more closely mirror the Texas plan, including used cars that were only a couple model years old. I would have been quite happy with a used 2008 Ford Focus instead of being forced into a 2009. Oh well.

    • Techguy1138 says:

      @Radoman:
      Peoples memories appear to be extremely short.

      I think you are right. When you look at the long term national ramifications vs the short term personal gain cash for clunkers did much more good than the edmonds figure suggests.

      While the one time impact of switching from an old low efficiency car to a new one isn’t that great it’s important to note the long term benefits. That new car is going to be on the road a long time. As it passes from owner to owner it going to go farther and farther down the economic food chain raising the average fleet fuel economy for the nation. Likely these cars will all be on the road for 15 years.

      Newer cars pollute less than the old cars that were replaced.

      Gas will always go up in price until an alternative is found. Imagine 10 years ago buying a car that gets 25 mpg. At the that time why bother gas was around $1. It’s not so hard to imagine with a falling US dollar and global inflation that gas could cost $5-7 in 10 years. Reducing the national demand for fuel over time is a prudent move.

      This is really a program that benefitted the nation more than any specific individual. As a one time program it was great.

    • srh says:

      @Radoman:

      Cash for clunkers was not a success by any objective measurement.

      From a 10,000 foot level, the failures should be obvious. Cash for clunkers did two things:
      1. Destroyed items of economic value
      2. Perverted market incentives, causing people to buy things they would not have otherwise bought.

      Zooming in to 1,000 feet one starts to see individual groups of winners and losers. Winners included dealers and car companies. Losers included consumers, parts businesses, taxpayers, junkyards, repair shops.

      At the 10 foot level, you can see the losers. A friend of mine who is a service writer at a repair shop saw a spike in business as people towed cars in to make them sufficiently roadworthy to drive in to the dealer. However he lost his job because of a lull in business afterward.

      Another poster mentioned the broken window fallacy. The logic of C4C is equivalent to the government throwing rocks through windows to stimulate spending on windows. Of course that sounds absurd — destroying a window just so somebody has to buy a new one. This transaction clearly represents a net economic loss to the economy, and yet this is precisely what C4C does.

      Regarding “lower gas prices for all”, this is a myth that deserves to be debunked properly, but this is not the place to do it. Suffice to say gas prices will not decrease appreciably because of C4C. Usage of gas, however, will increase.

      A good friend is a hiring manager for the business unit of a large company. He jokes that the one benefit of C4C is that it serves as a quick proxy for intelligence tests. His favorite question to ask in interviews is what the expected economic result of C4C would be.

      • Techguy1138 says:

        @srh:
        The broken window analogy only party applies.

        It’s paying people to replace low efficiency single pane windows with higher efficiency windows. When energy is cheap like now people call this foolish. It’s foolish to save %5 on an energy bill when it’s only $100 and the windows are perfectly good. It’s a completely different different story when your saving 25$ a month on heating and cooling for the next decade.

        Sorry about your friend. He didn’t loose his job because of C4C unless an abnormally large number of the trade-ins happened in his business area. Kind of cars that needed to be repaired to qualify for cash for clunkers should have been off the road anyway.

        I agree that gas prices won’t go down but I’m very curious how you believe that improving the fuel economy of the american fleet will increase the consumption of gas. It’s unlikely that people are going to drive 2x as much as they did before the program.

  10. White Speed Receiver says:

    Sorry, White House, but I’m not buying point #2.

  11. rpm773 says:

    Well, Edmunds, congratulations on making the Whitehouse enemies list.

  12. wgrune says:

    “The White House, however, begs to differ. So how did the Obama administration respond? With a snarky blog post.”

    Ha, how classy.

    • nbs2 says:

      @wgrune: Maybe I’m reading you wrong, but are you decrying that line as displaying a lack of class or the WH post as lacking? Read the blog post – it certainly is snarky. Or are you really considering buying a car on Mars?

  13. MercuryPDX says:

    As far as my own reasoning, I test drove and considered a new car earlier in the year before I ever heard of Cash for Clunkers. The best the dealership would do with my 11 year old, 110k+ miles, smoked in, soon to fail everywhere Jeep was $2800. Originally, they offered $2200+, but I told him I would rather sell it on the street for $3200.

    I decided to put it off for a year and started saving a larger down payment. Then C4C comes along, and I figured “Why not? It’s not like you’re going to get MORE for it next year and it’s a guaranteed $4500.” and jumped all over it.

    So yes, to echo some people above, it moved up my purchase date because it happened to work out in my favor. Had the C4C program been giving me $2500, I would still be in my old car.

    Ironically, the calculator on Edmunds.com (Or it may have been KBB) said “You would be a complete idiot not to trade this in. Why are you still sitting here, GO GO GO!!!”

  14. cluberti says:

    I’m torn on the CARS program. I think Edmunds is probably right here, but I also thought the program was a good idea – not just in stimulating sales, but permanent removal of vehicles from the roads that were heavier users of fossil fuels and potentially less emissions-friendly. I suppose time will tell if any of this helped at all, but I am hoping it did.

  15. StanTheManDean says:

    only 125,000 of the sales were incremental. The rest of the sales would have happened anyway, regardless of the existence of the program.

    Sure, I advanced my car purchases.

    Two of them infact.

    Didn’t hurt the used car market one iota. My OLDEST cars and truck were traded in. They would be going to the great scrape heap anyway.

  16. Al Swearengen says:

    If the graph is correct, it looks like after 9/11 everyone heeded the Bush administrations instructions to go out and buy stuff to prevent the terrorists from winning.

    • rpm773 says:

      @Al Swearengen: If I remember correctly, there were a lot of promotions advertising 0% financing, 0 down, 0 payments for several months (or some combination thereof) going on around that time.

      I’ve since read that Mitsubishi, who had a promotion containing all three programs, ran afoul some financial trouble as it saw a number of customers default on their financing.

    • hi says:
  17. marsneedsrabbits says:

    Stay classy, White House.

  18. fett387 says:

    Edmunds.com for president!

  19. Maltboy wanders aimlessly through the Uncanny Valley says:

    We were already preparing to buy a vehicle when we heard of CFC. So we got $4500 instead of $180 for our 93 Mercury Villager.

  20. PsiCop says:

    The Obama administration argues that many of the vehicles purchased during the CARS rebate period weren’t eligible for the program, but were purchased after publicity surrounding Cash for Clunkers coaxed Americans back into car dealerships.

    So … the program itself didn’t do what it was supposed to, but the hype surrounding it, did? Ergo, the program worked as planned?

    Seriously? Are they really going with that?

    (Obviously they ARE going with that … but come on, how utterly asinine!)

  21. AngryK9 says:

    As if anyone would be surprised by that…

  22. lhed says:

    “The Obama administration argues that many of the vehicles purchased during the CARS rebate period weren’t eligible for the program, but were purchased after publicity surrounding Cash for Clunkers coaxed Americans back into car dealerships.”

    This is an age-old huckster tactic called “the ol’ bait and switch”. It’s not very comforting to hear the Obama admin is comfortable with such tactics.

  23. brettshow says:

    @duffman13: In September of 01, GM had the get “let’s roll” campaign and all the domestic companies slashed their prices. The interest rates were knocked down to 0, the President was telling people to shop for the good of the country, it was kind of a mix of external factors that played into it. Maybe someone else can help fill in the blanks.

  24. DoctorMD says:

    @duffman13: So Bush just told people to buy cars and they did. Obama had to bribe them off with $24,000 to get the same result.

  25. That's Consumer007 to you says:

    @duffman13: I guess it was the Fox News watchers who obeyed Dubya when he told them to go buy stuff.

  26. Naame says:

    @gStein_has joined the star bandwagon: @duffman13: Part of stimulating the economy back into a stable position is getting people to buy sooner than later and to do it in such a way that you get A LOT of people to buy sooner than later.

    The theory is that the large increases in revenue allow businesses to both retain jobs and to create more jobs rather quickly as opposed to letting things just run their course naturally (in other words, it could still take a couple years). In turn, that allows more consumers to obtain steady streams of income and spend more as a result.

    So yes…in some sense it “cannibalized” some sales as you put it, but if more jobs are saved and/or created as a result it should also create some sales which would not have occurred otherwise in the future.

  27. YardanCabaret says:

    @Quake ‘n’ Shake: And killed the studies credibility.

  28. White Speed Receiver says:

    @Falcon5768: Excellent. I like being wrong from time to time when it comes to things like this.

  29. MooseOfReason says:

    @Falcon5768: Didn’t sales slump 30% for GM and Chrysler, and 5% for Ford, in the last month?

    If there’s much less demand, why increase supply?

    The White House needs a couple copies of “Economics in One Lesson” by Henry Hazlitt.

  30. GreatGerm says:

    @duffman13:

    That was part of it. I remember reading a car magazine around that time where the overwhelming response to a reader poll was that people would much rather drive across the country than fly.

  31. Falcon5768 says:

    @harvey_birdman: Ahhh but you just ruined your argument.

    “Not at all true. Just because a car is 10 years old does not make it a “piece of shit”. I’ve done more for the environment by maintaining and driving a two decade old Ford Taurus with 400,000 miles then you’ll ever do by buying a half dozen Priuses.”

    You just said the magic word, you maintained your car.

    I WAS NOT TALKING ABOUT PEOPLE WHO MAINTAINED THEIR CARS.

    Maintaining your car means it is likely NOT a piece of shit. I planned on keeping my current car for 10 years myself. I am talking about those leaking fuel guzzling cars with parts falling out which where the bulk of the trade ins.

    They where almost 2 decade old SUVs and trucks, likely horribly maintained to boot. We are NOT talking about a Ford Taurus which likely got decent gas millage to begin with.

  32. TuxthePenguin says:

    @Areyouagoodlittleconsumer: I disagree with you 100%.

    First, comparing the miles per gallon of a Model T and a Hummer right “out of the box” is misleading.. The Model T weighed ~1/2 a ton. The H2 (which I’m assuming you’re comparing to as it has the worst MPG of the three) weighs ~3 tons. That’s six times heavier. The Model T did not get six times better MPG. If you REALLY want to get technical, you should compare miles per gallon per horsepower if you wanted true fuel efficiency.

    Second, the Hummer was build because people wanted to buy them. That’s not sticking it to the consumer – that’s giving the consumer what they wanted.

  33. TouchMyMonkey says:

    @Areyouagoodlittleconsumer: People still had money to spend in 2001. They don’t now. Big difference.

  34. Amish Undercover says:

    @Naame: Additionally, the program removed cars from the road that might have been driven for another 0k-75k miles had each of those used cars been resold. That is, it moved up new car sales while not creating a larger used car market. It stands to reason the program even reducing the used car market by preventing those cars from ever making it to that market.