During the summer of 2009, the US government operated an economic stimulus program called Cash for Clunkers (C4C). The objectives of this program were to provide an immediate economic stimulus to the US economy, which was currently in recession, and encourage the replacement of inefficient vehicles for efficient ones in the private US transportation fleet, thus reducing overall fuel consumption on a national level. In addition, the government championed an expected reduction in pollution, especially smog forming emissions and greenhouse gases. An analysis summary of this program in meeting these goals based on the information available in September 2009 just after conclusion of the program follows in this article. You can download the full report here (pdf).
First, C4C did result in an increase in the fleet's average fuel economy, and therefore resulted in a savings in terms of expected gasoline consumed in the US. The following chart displays the level of gasoline savings as compared to doing nothing (or business as usual (BAU). The business as usual assumption also produces a savings in gasoline as current vehicles are more efficient than older vehicles, but not as significant as the C4C program.
Next, considering financial benefit to individual consumers we have to examine which vehicle they may be trading in and which vehicle they might purchase. This part of the analysis considers only the top 10 vehicles traded in and purchased under the program. As might be expected, loan interest, fuel costs, insurance costs, and vehicle purchase costs, along with miles expected to be driven, and length of time the car will be owned, in addition to resale costs, all affect the consumer's bottom line. The following matrix displays the net present value (NPV) to the consumer for a 100 different trade in and purchase combinations assuming 20,000 miles driven per year and a time horizon of 5 years between purchase and resale of the new car.
As seen from this high mileage scenario, only 60 of the 100 options provide a positive financial return to the consumer. Driving only 12,000 miles per year or less would mean than all of the vehicle trade options would provide a negative return to the consumer.
The main caveat to this analysis is that maintenance costs were not considered, due to a lack of data available. This would be expected to be a benefit (perhaps slight or significant) to the purchase of a new vehicle over retaining the old one, although, I would anticipate only a slight to moderate benefit in that direction. [ad name="Adsense Small Horz Banner"] In summary, while specific trades of certain older cars for newer one's was financially in the consumer's interest, especially if they were high mileage drivers and expected to keep the new vehicles for a long period of time, as a whole the program was not cost effective in reducing gasoline consumption or emissions on the national level. Those goals, in fact, would be better accomplished by subsidized efficiency and emissions regulations levied on all new vehicles sold in the market, since older vehicles naturally are removed from the vehicle fleet without any intervention.
In conclusion, I believe that a certain skepticism has to be entertained regarding the stated goals of the program (which have to be politically justified) and the actual unspoken goals of the program--which in this case was to push a lot of capital into the economy in a timely and popular fashion. This unspoken goal was clearly accomplished, although perhaps at a greater benefit to foreign corporations than anticipated.
*Jose Alfredo Galvan, Mohd Nor Azman Hasan, Rebecca Mayer, and myself conducted equal portions of this analysis. Full report available here (pdf).