A Brookings Institution study found the $2.85 billion program “provided a short-term boost in vehicle sales, which were pulled forward from sales that would have occurred in subsequent months. There was a small increase in employment but the implied cost per job created ($1.4 million) was far higher than other fiscal stimulus programs.”
The study — from researchers Ted Gayer and Emily Parker — said the “Car Allowance Rebate System,” or CARS did little to boost employment. This is at least the fourth major study since 2012 that has raised questions about the value of the program.
The study said far more jobs could have been created using other government stimulus programs — increasing unemployment benefits (at $95,000 per job); $80,000-$133,000 per job created for cutting employers’ payroll taxes; $222,000 per job created for reducing employees’ payroll taxes; $200,000 per job created for providing additional Social Security benefits; or $222,000 per job created for allowing the expensing of investment costs.
The study estimates the sales led to 3,676 “job years” — sales supporting a job for a single year — between the automaker and auto parts sector, or at a cost of $1.4 million per job. “This suggests that the CARS program was far less cost effective at creating jobs than other fiscal stimulus programs,” the report said.
The White House Council of Economic Advisers in 2009 had estimated far more jobs as a result of the program. The program “estimated that cash for clunkers will create 70,000 jobs in the second half of 2009.” The White House got into a war of words with Edmunds.com in October 2009 about the value of the program.
Nearly 700,000 vehicles were traded in between July and August 2009 under the program. Participants received either a $3,500 or $4,500 voucher toward the purchase of a new car depending on the difference in fuel efficiency — and the car traded in had to be destroyed. The study credits Alan Blinder for proposing the idea in a New York Times op-ed in July 2008. Initially the program received $1 billion but after the program quickly ran out of money, Congress approved another $2 billion.
The study noted that during “Cash for Clunkers,” the program accounted for 31.4 percent of total auto sales. Vehicle sales fell by 38 percent in September after the program expired. The study and several other studies suggest the program pulled ahead a $2 billion increase in third quarter Gross Domestic Program from the next six months. It also argues that the program “provided a short-term boost in vehicle sales of approximately 380,000 vehicles, which were pulled forward from sales that would have occurred in subsequent months.” The average price of vehicles purchased was $22,592.
But the program also destroyed some perfectly good cars. “Incentivizing the premature destruction of used vehicles represents a loss of capital stock and thus a reduction in economic wealth,” the study said.
A 2012 study found the program resulted in a reduction in gasoline consumption of 884 million to 2.9 billion gallons of gasoline — or 2.4 days to 7.9 days of total U.S. gasoline consumption. The study found the costs for reducing carbon emissions was similar to the $3,400 hybrid tax credit, but more cost effective than the electric vehicle tax credit, excise tax credit for ethanol or renewable fuel standard.
“The cost per ton of carbon dioxide reduced from the program suggests that the program was not a cost effective way to reduce emissions,” the study found.
The bill had required dealers to administer surveys to determine if people taking part had planned to buy a new car without the program. But because the program was rushed into existence, just 21 percent of buyers fully completed the survey.
The Transportation Department didn’t immediately respond to a request for comment. In June, outgoing Transportation Secretary Ray LaHood defended the program, saying the program took automakers “off life support.”
“The showrooms had been abandoned,” LaHood said before the program took effect.
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David Shepardson writes for the Detroit News in the Washington Bureau.