Cash for Clunkers: Success or Failure?
A wise automotive retail-sales manager told me years ago that the only thing better than a customer looking for a new car is a customer looking for a new car with real money to spend. As a former car salesperson, I was well aware of the frustration caused by spending hours (sometimes days) with a potential customer, selling them the “right” vehicle—only to find out they weren’t credit-worthy.
Dealership sales staff aren`t the only ones willing to do whatever it takes to close a sale. Buyers can be liars as well.
The Car Allowance Rebate System (CARS), referred to by many as the "Cash for Clunkers" program, was introduced at a very unique time in automotive history. Annual retail sales were in a spiral. Decreases were in the area of 6 million units over a 20-month period with no end in sight for how low it could go. Chrysler and General Motors, more so than their other Detroit Three counterpart, Ford, were headed for bankruptcy protection.
Toyota, Honda, and Nissan were also reeling, suffering significant losses in market share and, in some cases, product quality. Once thought to be untouchable, their steady rise to the top was now completely up for grabs.
If there were bright spots, Hyundai and Kia were making inroads with new product launches such as the Genesis and Genesis Coupe, as well as the Soul and Forte Coupe. Volkswagen was unexpectedly hot again, and Audi was well-positioned in the luxury segment to take the lead. Although there were pockets of good news within the industry, something needed to be done fast to rescue the American dream of owning a new vehicle.
As if this weren`t enough, the price of gasoline reached record levels. Not only was it a daunting prospect that people could manage to pay for a new vehicle, but it was also equally unlikely that they could afford to drive them after taking ownership. Fuel efficiency was quickly becoming just as important as the purchase price of a new car, truck, SUV, or van.
The Cash for Clunkers program was signed into law by President Obama on June 24, 2009. The goal was to encourage consumers to trade in their older, gas-guzzling used vehicles for new vehicles offering better fuel economy. As stated in the final bill (HR 2751), the rules were relatively simple:
- Under the bill, consumers could receive a voucher worth as much as $4,500 for the purchase or lease of a new, fuel-efficient vehicle upon trading in their less-efficient passenger car, SUV, or truck.
- To receive a voucher of $3,500, the consumer must purchase a new car that gets at least four more miles per gallon.
- To receive a voucher for $4,500, the new car must have a mileage rating at least 10 mpg higher.
Large vans, pickups, and work trucks were also eligible for the program, though under differing requirements:
- For a light-duty truck or SUV, the old truck must have a mileage rating of 18 mpg or less.
- To receive a voucher of $3,500, a consumer must purchase a new vehicle rated at least 2 mpg higher.
- To receive a voucher for $4,500, the new vehicle must get at least 5 mpg more.
Many took advantage of the program. So much so, it lasted less than half the time allotted, ending two months later at 8:00 p.m. on August 24, 2009. By trading in less fuel-efficient vehicles for newer fuel-sipping vehicles, the following numbers make a strong case for the success of the program:
Consumers: Consumers will save $568 million in annual fuel expenditures, while increasing average fuel economy by 9.1 mpg, a 58% improvement.
Economy: More than 680,000 vehicles were sold, creating or retaining 42,000 jobs in the second half of 2009.
Environment and Energy Independence: Annual gasoline consumption will be reduced by 189 million gallons, thus reducing annual C02 emissions volume by 1.7 million metric tons.
The list of the top 10 new vehicles sold is a who's who of fuel-efficient sedans and one SUV:
The list of the top 10 used vehicles coming in was equally as interesting—Ford took the top spot with 50% of the vehicles traded:
- Dodge Caravan/Grand Caravan 2WD
- Jeep Cherokee 4WD
- Ford Windstar FWD Van
Many believe the program was ultimately a success. Others are convinced that Cash for Clunkers simply moved the market ahead of schedule and the real test will come in 2010. Whether you believe it was good for the economy or a necessary step to maintain the American dream, results speak for themselves. Ford Motor Company spokesperson Christin Baker summarized the program this way:
"Cash for Clunkers helped jump-start sales and strengthen consumer confidence. In addition to being an effective stimulus, it drove consumers to more fuel-efficient vehicles, which will help reduce our nation’s fuel consumption and carbon footprint. This program had a positive impact on sales and delivered a steady flow of consumers into Ford and Lincoln Mercury dealer showrooms to experience our fresh lineup of high-quality, fuel-efficient products. The program was a win-win-win for consumers, the economy, and the environment."
