Cash for clunkers: Out of money, government ends program Monday

Transportation Secretary Ray LaHood announced Thursday that the government will end the popular cash for clunkers program on Monday. All applications for the rebate must be submitted by 8pm EST Monday, Aug. 24th.

The program has been so popular with consumers it has quickly run out of money--twice: First on August 3 after consumers soaked up the first $1 billion originally budgeted for the program. It is expected to exhaust the additional $2 billion added to the program this weekend.

The bigger question is whether cash for clunkers, officially called the Car Allowance Rebate System, accomplished the goals it was designed for?

Specifically, political leaders said they wanted to stimulate the economy, particularly car sales, and improve the fuel economy of the whole vehicle fleet to reduce oil imports. 

Consumer Reports ran some numbers, based on official government data to see what the overall effect has been.

When it comes to stimulating the economy, the jury's still out. So far, it looks like the clunkers program has been a moderate success. So far, it has directly accounted for an additional 457,000 car sales. Before the program, U.S. consumers were on track to buy about 9.5 million new cars in 2009. So the additional direct sales amount to a 5 percent increase.

Assuming the government has spent the whole $3 billion, that would account for a total of about 700,000 new car sales directly credited to the program, an increase of about 8 percent.

The program has indirectly brought consumers into showrooms who don't qualify, or for other reasons don't participate in the program, but who buy cars anyway. That has put us on track for more than 10.5 million new car sales this year, as of July 31, a greater than 10 percent increase.

If all those additional new cars cost the national average of about $29,000, that would amount to a total economic stimulus of $29 billion, about half the cost of bailing out General Motors or an increase of about 2 percent of the U.S. gross domestic product.

What remains to be seen, however, is how many of these sales might have happened anyway and were just accelerated. Or, put another way, how much sales will fall once the program ends. If they fall back below the levels seen earlier this year, the benefits may have been smaller.

In terms of fuel savings, the average new car sold under the program got 9.6 mpg more than the average clunker traded in. Based on the 457,000 cars NHTSA so far says have been sold, that would amount to a total national annual fuel savings of about 139 million gallons. That's a savings of about 0.07 percent of the 180 billion gallons of fuel we burn in cars each year, which translates to $394 million a year in savings to consumers. Extrapolating to all the cars expected to be sold under the program, including those NADA says NHTSA has not counted yet, yields a potential fuel savings of 213 million gallons, or about 0.11 percent, which would save consumers about $603 million a year.

The biggest benefit of the program, however, may not have been a stated goal at all. Most of the cars traded in under the clunkers program were larger old SUVs with high rollover rates that lacked the most beneficial modern safety equipment: electronic stability control, side curtain air bags, and even tire pressure monitoring systems. The majority of new models sold have side curtain air bags, and many have stability control. Tire pressure monitoring systems have been standard since the 2007 model year. And most of the cars purchased with clunker rebates have been cars with much better inherent stability.

It's hard to put a price on that kind of a safety improvement.

— Eric Evarts

For further information on the CARS program, visit our cash for clunkers resource center.  If you recently purchased a new car under the cash for clunkers program, share your story in our forum or comments below.