Was “Cash For Clunkers” Successful?

By Rachel Stockton

Cash for Clunkers was, undoubtedly, an ingenious way to infuse cash not only into the crippled auto industry, but into the overall economy as well.

The Obama administration appropriated, initially, $1 billion into the program in an effort accomplish several goals:

*To assist taxpayers stuck with gas-guzzling clunkers so they could at least recoup what their vehicles were worth, then go on to purchase a more fuel-efficient alternative.

*To infuse the economy with some stimulus money and much-needed retail momentum

The government paid up to $4500 for said clunkers, which was the redeeming value of scrapping them.

After the initial $1 billion investment, the government went ahead and appropriated another $2 billion for the duration. The actual cost of the program ended up being less than that; the final tally puts the cost of the program at $2.77 billion.

A total of 675,000 new cars were purchased in the months of July and August; that revenue was a shot in the arm to both state and local governments through sales tax. Ultimately, these monies will, in turn, help fiscally energize state and local infrastructures.

There is a down side to all of this, however, and that is the feast-or-famine sales model. As was expected, September car sales were dismal compared to August. However, an important point to remember is that the program was not intended to be a cure-all for the rest of 2009, but rather a momentum-building tactic.

The success of the program is easily established; other industries are banking on similar incentive programs to spur the public into spending their money. Mark Gatti, executive director of Washington D.C.-based Retail Advertising and Marketing Association tells www.allbusiness.com "It's a cool new marketing strategy, and Cash for Clunkers worked...this is a great strategy for getting people's attention."

And, of course, it did grab the public's attention, and it did so not only from a financial perspective. By creating a viable incentive, the government also emphasized the importance of going green and becoming energy-independent.

But, alas, Cash for Clunkers does have its limitations. State and local budgets aren't even close to bridging budgetary gaps or turn around what the New York Times is calling the worst revenue downturn in decades.

Just as the monetary infusion of the program had a ripple effect, so does the fiscal hangover left in its wake. Car and truck sales are the lifeblood of sales tax revenue for most states, and the recession is keeping America's collective pocketbook closed.

For example, the New York Times is reporting that Massachusetts state revenue was 5% below forecasts in the month of September; some analysts believe that the proverbial pool has been drained and that shortfalls can be expected through the last fiscal quarter. Additionally, August car sales were inflated by consumers trying to take advantage of the government program; many who actually purchased an automobile in August would likely have waited until the end of the year to make their purchase. That means we can expect lower-than-average car sales the rest of the year.

What we can expect through the end of the year are a high number of "cash for" campaigns; these incentives will likely be utilized in a concerted effort to buoy the holiday season.

All in all, the perceived success or failure of the Cash for Clunkers program lies in our expectations of it. If we were expecting it to somehow help reverse some of the casualties of the recession, we will likely be disappointed. If, however, we view it as a momentum- and attention-grabbing tactic, then we can certainly claim success.