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$24,000.00 Clunkers a Clunker?

by Hugh Askew | October 29, 2009 at 02:00 pm

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Used car website, Edmunds.com, is raising questions about the price the government paid for gas-guzzling cars under it's recently ended "Cash for Clunkers" program.

The maximum allowed by the program was $4,500.00. When the numbers are crunched, however, it appears that the Obama adminstration spent $3,000,000,000.00 to induce 125,000 people to buy new cars.

The math works out to $24,000.00 per car. Perhaps the government would have been better served to simply pay for the new cars purchased. Average cost of the new car purchased? About $26k.

The government has disputed Edmund's figures, saying, "that our (Edmund's) analysis was based on car sales on Mars, and that on Earth, the marketplace is connected."

The Edmund website responded with a press release saying, "At issue is one point of the analysis showing the taxpayer cost for every incremental vehicle sold was $24,000. To be clear, Edmunds.com is not disputing the government's statements regarding total voucher applications, vehicles sold or voucher values. The key question is how many of these sales would have occurred anyway.
Apparently, the $24,000 figure caught many by surprise. It shouldn't have. The truth is that consumer incentive programs are always hugely expensive when calculated by incremental sales — always in the tens of thousands of dollars. Cash for Clunkers was no exception."

A total of 690,000 new vehicles were sold under the Cash for Clunkers program last summer, but only 125,000 of those were vehicles that would not have been sold anyway, according to an analysis released Wednesday by the automotive Web site Edmunds.com.

Still, auto sales contributed heavily to the economy's expansion in the third quarter, adding 1.7 percentage points to the nation's gross domestic product growth.

The Cash for Clunkers program gave car buyers rebates of up to $4,500 if they traded in less fuel-efficient vehicles for new vehicles that met certain fuel economy requirements. A total of $3 billion was allotted for those rebates.

The average rebate was $4,000. But the overwhelming majority of sales would have taken place anyway at some time in the last half of 2009, according to Edmunds.com.

"It is unfortunate that Edmunds.com has had nothing but negative things to say about a wildly successful program that sold nearly 250,000 cars in its first four days alone," said Bill Adams, spokesman for the Department of Transportation. "There can be no doubt that CARS drummed up more business for car dealers at a time when they needed help the most."

In order to determine whether these sales would have happened anyway, Edmunds.com analysts looked at sales of luxury cars and other vehicles not included under the Clunkers program.

Using traditional relationships between sales volumes of those vehicles and the types of vehicles sold under Cash for Clunkers, Edmunds.com projected what sales would normally have been during the Cash for Clunkers period and in the weeks after.

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YankeeJim

at 14:18 on October 29th, 2009

Cash for Clunkers was a gimmick that surely benefited Toyota and provided marginal relief to some auto dealers; but really, this is a fundamentally unsound antic that released money that should have been used to support manufacturing industry for which there would be mutliple returns. As it is, this is a show of Obama amateurism. Add this to the pile of junk.

PIM of SPAIN

at 08:28 on October 30th, 2009

To put this matter in perspective the $24K is at the low side. Omitted is that from the buyers of CC cars probably as much a 50% would have bought anyhow a new car. This brings the stimulus up to $48K / sold car, more as the initial value of the sold car! As I wrote before any stimulus is distorting the market equilibrium between supply and demand! Indeed the car industry took a nose dive in Sept. after the 3 Billion was spent in a matter of 3 weeks. Started with 1 B to last until November as planned that was immediately increased with another 2B after its splendid first week success and only lasted two more weeks. By then the Fed went out of the car business. Now the recession is over, because of the successes the stimuli initiated:) SMILE

Queenshart a good point you made. My sales people were trained to know the product inside out and even better the products of the competition, that made the team successful.

Hugh Askew

at 01:39 on October 31st, 2009

Pim the $24,000.00 took into account those that would have probably purchased a car anyway.

Using previous known ratios of cars excluded, to those covered by the program, they arrived at sales directly tied to the program of 125,000 vehicles.

At a program cost of $3,000,000,000.00 (3 billions) ÷ 125,000 vehicles = $24,000.00 per vehicle.

PIM of SPAIN

at 06:16 on October 31st, 2009

Anyhow HA it's proven this CC has been a waste of money. B&B won't get back in this car business as is seen that the automobile sales fell in Sept. the month after the CC ended. And still isn't back to 'normal' which won't happen for a long period of time to come.