A Cash for Clunkers Hangover

The Cash for Clunker program, invented by Washington politicians, has been completed and it is time to assess the results.  The program included $4,500 rebates to new car purchasers at a total cost of approximately $3.1 billion dollars to taxpayers.

While 700,000 vehicles were sold under the program, many would have been sold irrespective of the rebates as older cars got trashed.  Now the automobile manufacturers and dealers are left with a hangover since the Cash for Clunker program robbed from future sales, as indicated in September’s numbers published in the Wall Street Journal:

• This September’s new car sales were only 746,000 units, compared to 965,000 a year earlier.
• General Motors (Government Motors) September sales fell 45%, while Chrysler’s sales, the other recipient of government bailout funds, dropped 42%.
• Ford, the only remaining big three that did not accept a bailout dropped only 5%.
• The transplanted Japanese companies, Honda and Toyota, dropped only 20% and 13% respectively.

Some clear conclusions can be made from the numbers.  First, the Cash for Clunkers program cost the taxpayers dearly, but offered little long-term benefit to the economy.  In fact it will end up causing more problems giving the disruption to inventories relating to the one time sales boost.  In addition, the two American companies that received bailout funds continued bleeding market share, with GM’s falling from 29% to 21% and Chrysler’s from 11% to just over 8%.  The government’s bailouts were not a good taxpayer investment.

The Cash for Clunkers program is another example of the failure of governmental intervention in the markets.  Even if the politicians were competent in economic theory, the markets are too complex for interventions to succeed.  They inevitably will create disruptions and more problems than what the interventions were designed to cure.  But don’t expect the government to learn from its failures.  Instead, it will come up with other incentive programs in an effort to artificially stimulate demand when the economy is in fact requiring a rebalance of supply and demand.

The activists who believe in government intervention into markets should carefully consider history.  Interventions played a role in creating the mortgage crisis and related housing bubble.  They have also propped up poorly managed automobile companies, leaving too much supply (factories) for the demand of automobiles.  This has hurt the entire industry.  Now, these same folks want to follow these dismal failures by taking over America’s healthcare system.  That sure sounds like the definition of insanity!