The Car Allowance Rebate System (CARS), colloquially known as "cash for clunkers", was a $3 billion U.S. federal scrappage program intended to provide economic incentives to U.S. residents to purchase a new, more fuel-efficient vehicle when trading in a less fuel-efficient vehicle. The program was promoted as providing stimulus to the economy by boosting auto sales, while putting safer, cleaner, and more fuel-efficient vehicles on the roadways.
The program officially started on July 1, 2009, processing of claims began July 24, and the program ended on August 24, as the appropriated funds were exhausted. The deadline for dealers to submit applications was August 25. According to estimates of the Department of Transportation, the initial $1 billion appropriated for the system was exhausted by July 30, 2009, well before the anticipated end date of November 1, 2009, due to very high demand. In response, Congress approved an additional $2 billion.
A study by University of Delaware researchers concluded that for each vehicle trade, the program had a net cost of approximately $2,000, with total costs outweighing all benefits by $1.4 billion. Another study by University of Michigan researchers found that the program improved the average fuel economy of all vehicles purchased by 0.6 mpg in July 2009 and by 0.7 mpg in August 2009. A 2017 study in the American Economic Journal found that the program, intended to increase consumer spending, reduced total new vehicle spending by $5 billion.
Video Car Allowance Rebate System
Legislative history
Economist Alan Blinder helped popularize the idea of a scrappage program, and the moniker "cash for clunkers", with his July 2008 op-ed piece in the New York Times. Blinder argued that a cash-for-clunkers program would have a tripartite purpose of helping the environment, stimulating the economy, and reducing economic inequality.
A number of organizations advised Congress in developing the program including ACEEE, CAP Action Fund and SmartTransportation.org.
Jack Hidary of Smart Transportation and Bracken Hendricks of the Center for American Progress co-wrote a paper which was distributed to Congressional offices in November 2008 describing the multiple benefits of a cash-for-clunkers program.
The House approved the creation of a cash-for-clunkers program with the 298 to 119 passage of the CARS Act ("Consumer Assistance to Recycle and Save Act", H.R. 1550). The House bill, sponsored by Rep. Betty Sutton (D-Ohio), allowed consumers to trade in vehicles with a combined fuel economy of 18 or less for new, more efficient vehicles. In the Senate, Debbie Stabenow (D-Michigan), and Sam Brownback (R-Kansas) sponsored a bill very similar to the House's.
An alternative bill proposed by Dianne Feinstein (D-California), Susan Collins (R-Maine), and Charles Schumer (D-New York) would have had a greater focus on increasing fuel economy. Proponents argued that the alternative bill would lead to 32% more efficiency improvements than the House-Stabenow-Brownback version of the program. The alternative bill would have required that the trade-in vehicle have a fuel economy rating of 17 mpg or less and offered a three-tiered voucher system ranging from $2,500 for a new car that is 7 mpg more efficient than a trade-in to $4,500 for one that is 13 mpg more efficient. Mileage improvement requirements would be less for light and heavy duty trucks. Pre-1999 work trucks would be eligible for the $2,500 voucher regardless of mileage improvements. The alternative bill also gave a $1,000 voucher for the purchase of a more efficient used car; the House bill completely excluded used vehicles.
In the Senate, the cash-for-clunkers legislation was inserted into a larger war supplemental funding bill. Dissenting Senators raised a point of order under Rule 28, which prohibits insertion of provisions not previously passed by either house into conference reports. The rule was overridden with 60 votes, despite some senators, including Sam Brownback, being uncomfortable with a last-minute change that called for the bill's funding to come from "deficit spending" rather than from the stimulus package that was originally agreed upon. The larger funding bill passed by a vote of 91-5 in the Senate.
The Supplemental Appropriations Act, 2009 was signed into law with the Consumer Assistance to Recycle and Save Program (C.A.R.S.) as Title XIII. The program received an initial allocation of $1 billion (out of the $4 billion estimated cost) funded by the U.S. government and the program time length was July 1 - November 1. It was implemented by the National Highway Traffic Safety Administration (NHTSA) which had 30 days from the approval of the bill to post all program details online.
In response to the U.S. Department of Transportation estimate that the $1 billion appropriated for the system was almost exhausted by July 30, 2009, due to very high demand, Congress approved an additional $2 billion for the program with the explicit support of the Obama Administration. On July 31, 2009, the House of Representatives approved the extra $2 billion for the program, and the Senate approved the extension on August 6, defeating all six amendments presented. President Barack Obama signed the bill into law on August 7, and the appropriation was exhausted by August 24, 2009.
Maps Car Allowance Rebate System
Eligibility criteria
- Vehicle must be less than 25 years old on the trade-in date.
- Only the purchase or 5 year minimum lease of new vehicles qualify.
- Generally, trade-in vehicles must get a weighted combined average rating of 18 or fewer miles per gallon (some very large pickup trucks and cargo vans have different requirements).
- Trade-in vehicles must be registered and insured continuously for the full year preceding the trade-in.
- Trade-in vehicles must be in driveable condition.
- The program requires the scrapping of the eligible trade-in vehicle and that the dealer disclose to the customer an estimate of the scrap value of the trade-in. The scrap value, however minimal, will be in addition to the rebate, and not in place of the rebate.
- The new car bought under the plan must have a suggested retail price of no more than $45,000, and for passenger automobiles, the new vehicle must have a combined fuel economy value of at least 22 mpg.
Last-minute car ineligibility
According to USA Today, the U.S. Environmental Protection Agency (EPA) revised its mileage estimate list just before the start of the Car Allowance Rebate System program.
For example, the 1991 Dodge Grand Caravan is listed below as ineligible because the 1991 Dodge Grand Caravan with a 4 cylinder engine has an EPA combined mileage of 19 and is not eligible; however, the V6 3.3L and 3.8L engines in these vehicles have EPA combined mileage of 18 and thus are eligible. The changes made some of the following cars with certain engine configurations ineligible:
The EPA "gave no reason its ratings were inaccurate or why some went up", according to USA Today. Karl Brauer, editor in chief of Edmunds.com, said, "It's unfortunate that consumers who had been researching and planning to trade in their vehicle ... are now left in the dust". "Consumers acting in good faith should not be penalized for undisclosed and last-minute changes made by the government", Kevin Smith, Edmunds.com editorial director, said in a statement.
The U.S. Department of Transportation ruled that deals involving cash-for-clunkers trade-ins based on old EPA mileage numbers and consummated before July 24 would be honored, but that deals consummated after July 24 on vehicles that became ineligible as clunkers due to mileage ratings changes would not be honored.
Credit
Depending on the type of car purchased and "the difference in fuel economy between the purchased vehicle and the trade-in vehicle", the amount of the credit given in the form of vouchers to eligible customers is either $3,500 or $4,500. New car dealers will be able to reduce the purchase price by the amount of the voucher for which that the customer is eligible.
Engine disablement and scrappage criteria
To ensure that vehicles traded-in under "cash for clunkers" will not be resold by dealers, the program outlines a procedure for destructively disabling the engine (and thus also precluding the possibility that any mechanical engine components might be salvaged to be used in the repair of any other vehicles): The motor oil is drained and replaced with a sodium silicate solution, then the engine is started and run until the solution, becoming glass-like when heated, causes engine internals to abrade and ultimately seize. In addition, the salvage or scrap facility which acquires the vehicle cannot sell the engine, cylinder heads or a "rolling chassis" from the scrap vehicle. The salvage or scrap facility can sell any other component (including the transmission and axles) from the scrap vehicle separately and may dismantle and warehouse the parts. The "hull" of the vehicle must be crushed within 180 days. Cut off or unbolt front end assemblies may be saved and sold at a later date,as well as the "top and back" of pickup cabs.
The outlined procedure says that running the engine at 2,000 RPM "should disable the engine within a few minutes"; if not, then allow the engine to cool off before repeating the procedure. Hazards associated with the intentional overheating and destruction of the engine include rupturing radiator and hot water/steam, motor oil ejection, toxic fumes, and fire.
By completely disabling the engine, the CARS program avoids recycling schemes such as the one discovered in Germany, where authorities found that an estimated 50,000 scrapped vehicles have been exported to Africa and Eastern Europe, where newer, safer cars of the type being destroyed in the West are prohibitively expensive, In contrast with the U.S. program, the German program only requires dealers to drop off the scrapped vehicles at junkyards, thus allowing the illegal exports.
Auto recyclers and dismantlers have criticized the program due to requirements that the engine is to be disabled to prevent re-use of the car. To auto recyclers, a car's engine is considered to be the most valuable part of a junked car. Some recyclers have refused to participate in the program as well due to the limited profit potential of junking a car brought in under CARS.
National Motor Vehicle Title Information System
After Hurricane Katrina, vehicles that were declared as total losses in one state were transferred to other states and resold to unsuspecting consumers with clean titles. In order to avoid clunkers declared under the CARS program and that could also find their way back onto the used-car market through similar surreptitious means, the federal government set up the National Motor Vehicle Title Information System (NMVTIS) to track totaled vehicles and prevent their resale. By October 2009, 28 state motor-vehicle agencies participated or contributed to NMVTIS, and 11 others were working toward participation. All states were required to be fully participating by January 1, 2010.
The CARS program required that recyclers report the Vehicle Identification Numbers (VINs) and the status of clunker to the NMVTIS within seven days of acquiring the vehicle.
Used car shoppers, by paying a fee, can have access to vehicle-history reports via electronic database at www.vehiclehistory.gov. The database contains information on vehicles from insurance companies, junkyards and salvage yards. The NMVTIS is the sole repository for clunker data.
Program results
Auto Observer said there was one major technological glitch in the program. "Government officials said the public site for customers and the site for dealer sign-ups were on the same server, which became overloaded. The site was taken down [the night of July 24, 2009] while the two functions supposedly were separated and put on two different servers", Auto Observer reported. Dealers also had difficulty getting paperwork processed. Given the uncertainty of being paid, dealers decided to wait on destroying the old cars.
By July 29, $150 million of the $1 billion had already gone to new purchases. Dealers have had a higher volume of potential customers, partly because of other incentives offered by the manufacturers and the sellers. Some dealers believed the increase was only temporary. However, many people who visited car dealers found out their cars were not eligible, but they bought cars anyway. A lot of people who were able to participate were buying anyway, but their trade-in value jumped significantly. According to House Speaker Nancy Pelosi, the cars purchased had higher gas mileage than what the bill required.
The National Highway Traffic Safety Administration reported 23,000 participating dealers. Stabenow said 40,000 cars had been sold and another 200,000 sales had yet to be completed. Sutton chief of staff Nichole Francis Reynolds said, "The program has spent $150 million and has another $800 million to $850 million in (pending) obligations. ... This is one of those programs you can really see working". Rep. Candice Miller (R-Mich.) said, "It has exceeded everyone's expectations". Miller and Sutton wanted to spend a total of $4 billion on the program. Bailey Wood, legislative director of the National Auto Dealers Association, said, "Obviously the program has been an immense success in stimulating automotive sales".
On July 30, Wood announced the suspension of the program. White House Press Secretary Robert Gibbs denied this was happening, saying the administration is "evaluating all options". Dealers that have been aggressively advertising the program cannot simply stop the ads, so there were concerns about whether the program would continue. According to estimates of the Department of Transportation, the $1 billion appropriated for the system was exhausted by July 30, 2009, well before the anticipated end date of November 1, 2009, due to very high demand. The House of Representatives appropriated another $2 billion to the program on July 31, with the Senate adding its approval a week later. President Barack Obama signed the bill into law on August 7, and government officials expect that the additional funds will be exhausted by Labor Day.
Former Federal Reserve chairman Alan Greenspan said on ABC's This Week that the success of the program resulted from waiting for the economy to improve. He said, "If ... the clunker program had been put in place six months ago, it would have probably been a dud". Greenspan did not believe the program had stimulated the economy.
On August 3, the DoT reported from a sample of 120,000 rebate applications already processed, that "the average gas mileage of cars being bought was 28.3 miles per gallon, for SUVs 21.9 miles per gallon, and for trucks, 16.3 miles per gallon, all significantly higher than required to get a rebate". Senator Susan M. Collins said that "vehicles being purchased under the program would go an average of 9.6 more miles per gallon than those being turned in, which she said was a 61 percent improvement".
The DoT also reported that "Ford, G.M. and Chrysler supplied 47 percent of the new vehicles, slightly more than their overall share of the market, which is 45 percent". Detroit's Big Three automakers said the demand peak that occurred in the final week of July left their inventories of unsold vehicles at the lowest levels in many years, but such windfall could hurt sales of some popular models in August. Ford sales went up in the United States for the first time since 2007, while GM and Chrysler at least improved by slowing their decline.
After the first week of the program, the Department of Transportation reported that the average fuel efficiency of trade-ins was 15.8 mpg, compared to 25.4 mpg for the new cars purchased to replace them, translating to a 61% fuel efficiency improvement. The DoT also commented that the program participants were downsizing, rather than making one-for-one replacements, and turning in their old trucks and SUVs for new small sedans, as 83% of the trade-ins were trucks, and 60% of new purchases were cars. As of 3 August 2009, the top trade-in was the Ford Explorer 4WD and the top selling car was the Ford Focus. However, according to an analysis carried out by Edmunds based on a sample of transactions between July 24 to July 31 (the first week of the program), the Ford Escape crossover SUV was the actual best seller while the Ford Focus ranked in second place, when the tallying is done grouping different versions of the same vehicle together. As of August 21, the Department of Transportation reported that the downsizing trend continued, with the Toyota Corolla ranking as the top seller after four weeks of the program, followed by the Honda Civic, and the Ford Focus, and the Ford Explorer 4WD continued as the top trade-in.
According to USDoT, at the end of the program Toyota accounted for 19.4% of sales, followed by General Motors with 17.6%, Ford with 14.4%, Honda with 13.0%, and Nissan with 8.7%.
The following table tabulates top replacements under the CARS program based on information submitted for rebates. Each vehicle model combines all drivetrains, hybrids and year models, which was tabulated separately in the U.S. Department of Transportation ranking.
Reception
Economic effects
- In a study published after the program ended, Burton A. Abrams and George R. Parsons, professors at the University of Delaware, concluded that for each vehicle trade, the program had a net cost of approximately $2,000.
- A September 2010 study by Atif R. Mian and Amir Sufi concluded that the program simply pulled purchases from the future: it produced a short-lived effect (360,000 additional cars sold in two months), but that the effect was almost completely reversed in the seven following months due to fewer cars sold, and found no evidence of effect on employment, house prices, or household default rates in cities with higher exposure.
- An article in The Economist argued that the program is the kind of policy required to avoid the liquidity trap in times of economic depression, as defined by John Maynard Keynes. The article states that:
the boost in demand that the rebates have brought about is exactly the sort of stimulus that is urgently needed to escape what John Maynard Keynes called a "liquidity trap". According to his theory, consumers may become so worried about the economy that they cling to as much liquid wealth as possible, cutting their spending sharply and thereby triggering precisely the slump they feared. Moreover, as stimulus policies go, cash-for-clunkers looks to be unusually effective. Admittedly, that is not an especially demanding measure, given that Keynes favoured, if need be, burying money in bottles for people to dig up and spend. Cash-for-clunkers has many benefits beyond simply getting more money passing through the hands of consumers and into aggregate demand.
- John Irons, research and policy director for the Economic Policy Institute, said that in improving the economy, "in terms of bang for the buck, this is up there pretty high up there".
- Jacksonville State University economist and Ludwig von Mises Institute scholar Christopher Westley said that the program "sticks it" to the poor and lower-middle classes by raising the price of the remaining cars in the secondary market, as well as by raising the general price level resulting from the monetary inflation required to finance it. Westley called CARS the "I Hate the Poor Act of 2009".
- Despite Transportation Secretary Ray LaHood's claims that the program would benefit scrapyards, auto recyclers and scrapyards lamented the cost of transporting and removing toxic waste (such as motor oil, coolant, refrigerants, gasoline, unrecoverable plastics, and other items) from the car before processing, which can amount to $700-1,200 per car. Some recyclers refuse to participate in the program due to this.
- Early reports showed that the program, though promoted as bolstering Detroit's embattled carmakers, have actually increased market share for Japanese and Korean automakers. According to data published by the National Highway Traffic Safety Administration, Americans have used the scrappage incentives to buy more vehicles from Toyota than any of the three Detroit carmakers. Only Ford did not drop in market share after the program was introduced.
- According to an Edmunds.com study released October 28, the program actually cost Americans nearly $20,000 more per car than the maximum rebate. Only 125,000 of the 690,000 purchases would not have been made without the incentives, the company said, and with $3 billion spent, that works out to $24,000 per car. However, the White House disputes this claim on the grounds that Edmunds relies on two faulty assumptions: it assumes "that the market for cars that didn't qualify for cash for clunkers was completely unaffected by this program" and "ignores the beneficial impact that the program will have on 4th Quarter GDP because automakers have ramped up their production to rebuild their depleted inventories."
- A study published by the Center for Business and Economic Research at Ball State University estimated the actual CARS-induced automobile sales increase as roughly 685,000 for July and August 2009. The author used an econometric model of monthly automobile sales, treating the CARS period of July and August in two different ways to account for the inconsistent time periods in each. Noting several concerns with the legislation, this author was not sanguine in its assessment of the program, but did note that: "one criticism of the program - that cash for clunkers actually led to few additional automobiles sold - does not survive the scrutiny of empirics."
Charities
Charitable organizations bemoaned the program, noting the lack of repairable cars for charity purposes, and a source of revenue to fund programs. A collection of charities, under the umbrella of Pete Palmer's Vehicle Donation Processing Center, reported a 7.5% decline in car donations in the month the Car Allowance Rebate System debuted.
Environmental effects
Critics argued that people trading in cars would use such funds to mostly buy trucks, with a minimal benefit on gas mileage. However, the average fuel economy of a clunker was 15.8 mpg, compared to 25.4 mpg for the car that replaced it--a 61% improvement (37% improvement if using gallons per 1,000 miles). New federal data analyzed by The Associated Press finds that the single most common swap, at an occurrence rate of more than 8,200 times, involved Ford F-150 pickup owners. The fuel economy for the new trucks ranges from 15 to 17 miles per gallon, which equates to a mere 1 to 3 mpg improvement over the clunkers.
The Associated Press, in using Edmunds data, noted that many not-so-green cars have also been bought under CARS, notably SUVs, Trucks, Luxury, and Crossover vehicles. Some buyers have been noted to have bought the Cadillac SRX, while other vehicles such as the Hummer H3T, Lexus RX 350, Lincoln MKX, and BMW X3 are qualified under the program, despite being rated under 20MPG, some considerably less than the average 25.3 mpg for cars purchased under CARS. The models also fall under the $45,000 threshold outlined in CARS.
Declan McCullagh, from CBSNews.com, argued that "as fuel efficiency has increased since the early 1980s, cars get driven more. Plus, there's the environmental cost of building the new vehicles in the first place". William Chameides, dean of the Nicholas School of the Environment at Duke University, argued that between 3 and 12 tons of carbon dioxide are emitted for each new car, due to such factors as shipping the car and the electricity consumed in manufacturing it. In addition, in order to offset the carbon footprint of the new car from a clunker (using the ratio of 18 mpg for the "clunker" and the minimum 22 mpg for a qualifying vehicle), the average driver would need to drive the car about five and a half years; with trucks, the figure jumps to eight or nine years of typical driving.
Harvard economics professor Edward Glaeser argues that subsidizing fuel-efficient vehicles encourages more driving, as the marginal cost per mile driven is less, which causes total fuel consumption to decrease less than expected. He proposes that a more effective policy would be to raise taxes on carbon dioxide emissions. Bruce Belzowski, a scientist at the University of Michigan's Transportation Research Institute, notes that the number of vehicles involved in the CARS program (~250 thousand) is a small fraction of the number of vehicles currently on U.S. roads (~260 million) and thus is not expected to have an appreciable effect on pollution savings.
A study by researchers at the University of Michigan evaluated the effects of the program on the average fuel economy considering a baseline without the existence of the program, since there was already a trend for buying vehicles with higher fuel economy due to the high gasoline prices of 2007 and 2008, and the economic crisis of 2008. The study found that the program improved the average fuel economy of all vehicles purchased by 0.6 mpg in July 2009 and by 0.7 mpg in August 2009, as summarized in the following table:
Rationale for removing the most inefficient vehicles
Saving one gallon of gasoline per 100 miles saves 20 pounds of carbon dioxide, which is approximately one ton of carbon dioxide every 10,000 miles of driving. An improvement from 14 MPG to 25 MPG saves 3 gallons of gas per 100 miles, or 3 tons of carbon dioxide in 10,000 miles of driving. The replacement of older vehicles also reduces other non-greenhouse pollutants. "Gas consumption" calculators that translate "miles per gallon" to a measure of "gallons per mile" can help car buyers see the gas savings from their trade ins.
Safety
National Highway Traffic Safety Administration spokesman Eric Bolton pointed out the newer cars purchased under the program are also "considerably safer than the old clunkers they are replacing".
Scrap value
Part of the Car Allowance Rebate System bill made buyers eligible for the scrap value of the car along with the rebate, with the dealers taking in $50 of the value and to share the rest of the value to the buyer. While some dealers and Car Dealer Associations have argued that buyers were not entitled to the scrap value of the car, advocacy groups and State Attorney's General argued that the law made the issue clear that buyers were entitled to the scrap value of the car. Some dealers have claimed that they did pass on the scrap value of the car to buyers.
Exotic cars crushed under the program
Jalopnik reviewed the lists published by the NHTSA and found numerous cars crushed under the program that had book values far exceeding the rebates offered by the government. Among some of the cars whose book value was worth more than government rebates included models ranging from the GMC Typhoon to the Bentley Continental R. However, a further review noted that many cars that were thought of as being crushed under the program were improperly recorded and/or swapped for other car models or trims. Some exotic/collectible vehicles were scrapped under the program included a Maserati Biturbo with 18,140 miles, a GMC Syclone, which was removed from scrappage in the program by a group of car enthusiasts a GMC Typhoon, An Isuzu Vehicross, a La Forza SUV, a TVR 280i, and various Ford Mustang, Ford Taurus SHO, Chevrolet Camaro, and Chevrolet Corvette models, among other cars.
Ending the program
On August 20, 2009, Transportation Secretary Ray LaHood announced that the program would end at 8:00 p.m. Eastern Time on Monday, August 24. After the announcement, several dealers decided to stop participating in the program after Saturday, August 22, due to the difficulties in processing their reimbursements through the government web site where the paperwork must be filed.
Secretary Ray LaHood also commented that "it [had] been a thrill to be part of the best economic news story in America", in a news conference regarding the announcement on August 20. As of early August 25, the DoT reported 665,000 dealer transactions corresponding to $2.77 billion in rebates.
In October 2011, former Obama administration economic advisor Austan Goolsbee stated that, "the administration misjudged how quickly the country could recover from the economic damage of the 2008 economic collapse" and now knowing that it has "proved a longer, tougher ride than we thought at the time", he would not have created this short-run program to stimulate the economy, but "he supports the overall stimulus program, which he claims warded off a depression."
See also
- Parable of the broken window
- Scrappage program
- Transport and the environment
References
External links
- Official website
- Gayer, Ted; Parker, Emily (October 31, 2013). "The Car Allowance Rebate System: Evaluation and Lessons for the Future (policy brief)" (PDF). Brookings Institution. Archived from the original (PDF) on 2013-11-02.
Source of the article : Wikipedia
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