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)

Want more consumer news? Visit our parent organization, Consumer Reports, for the latest on scams, recalls, and other consumer issues.