Ken’s Take: The core question re: the effectiveness of C4C is whether the program created incremental demand for cars or simply paid people to shift likely demand earlier. Initial results are coming in … synopsis: ouch !
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Excerpted from WSJ: One of Washington’s all-time dumb ideas, Oct. 4, 2009
Remember “cash for clunkers,” the program that subsidized Americans to the tune of nearly $3 billion to buy a new car and destroy an old one?
Last week U.S. automakers reported that new car sales for September, the first month since the clunker program expired, sank by 25% from a year earlier. Sales at GM and Chrysler fell by 45% and 42%, respectively. Ford was down about 5%.
Some 700,000 cars were sold in the summer under the program as buyers received up to $4,500 to buy a new car they would probably have purchased anyway, so all the program seems to have done is steal those sales from the future. Exactly as critics predicted.
Burton Abrams and George Parsons of the University of Delaware added up the total benefits from reduced gas consumption, environmental improvements and the benefit to car buyers and companies, minus the overall cost of cash for clunkers, and found a net cost of roughly $2,000 per vehicle. Rather than stimulating the economy, the program made the nation as a whole $1.4 billion poorer.
In the category of all-time dumb ideas, cash for clunkers rivals the New Deal brainstorm to slaughter pigs to raise pork prices. The people who really belong in the junk yard are the wizards in Washington who peddled this economic malarkey.
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The Homa Files 
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