Cash for Clunkers: Did It Work?

NPR reported a study that tried to assess the impact of the Cash for Clunkers program, an incentive program offered by the federal government to stimulate car sales. The study concluded that: “The program didn’t bring new buyers into the market. But it encouraged people who would have bought a car anyway to make their purchase a few months sooner.” From a research perspective, the challenge is to determine what impact the program had. The reporter noted, “The only way to answer the question definitively would be to find a parallel universe exactly like ours, except for one thing: no cash for clunkers program. The economists behind the new study — Amir Sufi of the University of Chicago and Atif Mian of the University of California, Berkeley — think they found a passable substitute for a parallel universe: parts of the U.S. where, for one reason or another, there were almost no clunkers on the road when the program took effect.” In jargon, this would be a quasi-experimental design using statistical controls to create a comparison group. From a research perspective, one question that should spring to mind is exactly how could they determine where clunkers existed and where they did not. Assuming they could find way to measure clunkers in communities in so they could be compared, the next question would be whether there were other systematic differences in the community that might help explain why they did or did not buy cars after the program ended. Lastly, was there other external factors that might have impacted car buying behavior after the program ended–like whether the economy was worse? The program, however, was not intended to help consumers–although they did benefit by paying about $4,000 less for a new car with their clunker trade-in. The beneficiaries of actual dollars were car dealerships and ultimately, car manufacturers, who received some portion of the $2.5 billion spent on this program. The same question could be asked of the stimulus money that went to first-time home buyers. They too received “money” that would reduce the price of the purchased home. In this case, the mortgage

companies were the real beneficiaries–who now had a new crop of interest-paying buyers who perhaps offset foreclosure losses. And were the results similar? Did home sales drop dramatically after the program ended? That appears to be the case. The larger question, then, is whether these type of incentive programs designed to spur short-term market activity can help turn-around the recession and restore long-term economic growth. The NPR story: Cash for Clunkers at: The full study is posted under Research Studies button.

This entry was posted in Economy.

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