Automobile sales are slow. Around here, local car dealers are offering 1% financing, 0% financing, leases, and even their own version of Cash for Clunkers. $4,500 off, supposedly. Heh.

Last year, I thought Cash for Clunkers was a fair stimulus plan but not much of an environmental benefit. From what I read, many customers traded in their clunkers for what I considered slightly newer clunkers, SUVs and trucks, with only slightly better mileage. Supporters argued that even a small improvement in mileage was significant, but I had a more aggressive agenda.

Now Cash for Clunkers is back in the news. Based on The Effects of Fiscal Stimulus: Evidence from the 2009 ‘Cash for Clunkers’ Program, a study posted on the Social Science Research Network, opponents of everything to do with the Obama Administration assert that C4C was a failure as a stimulus. If you believe statistics, they say that all C4C accomplished was to borrow sales from the preceding and subsequent months. And now, they claim, the struggling middle class is having a hard time finding affordable used cars.

A key rationale for fiscal stimulus is to boost consumption when aggregate demand is perceived to be inefficiently low. We examine the ability of the government to increase consumption by evaluating the impact of the 2009 “Cash for Clunkers” program on short and medium run auto purchases. Our empirical strategy exploits variation across U.S. cities in ex-ante exposure to the program as measured by the number of “clunkers” in the city as of the summer of 2008. We find that the program induced the purchase of an additional 360,000 cars in July and August of 2009. However, almost all of the additional purchases under the program were pulled forward from the very near future; the effect of the program on auto purchases is almost completely reversed by as early as March 2010 – only seven months after the program ended. The effect of the program on auto purchases was significantly more short-lived than previously suggested. We also find no evidence of an effect on employment, house prices, or household default rates in cities with higher exposure to the program.

I don't accept statistics as a matter of course, but in this case, I suspect that C4C did merely accelerate sales that would have happened anyway. But wasn't that the point? Also, all those new cars should have provided a nice stimulus for the auto insurance industry.

I do take issue with the argument that C4C alone is responsible for a shortage of used cars. In my view, people are looking for used cars because they can't afford new ones. The floundering housing market means fewer pickup trucks as work vehicles. Remembering $5 per gallon, people want smaller cars. Finding new small cars is no problem, but the used market is restricted by the production mix from before high gasoline costs and before the recession. C4C only aggravates that disparity. Buyers are competing for those relatively few fuel-efficient cars and bidding up prices.

In a related though admittedly anecdotal observation, every repair shop I know is booked solid as people try to keep their older cars running as long as possible.

I'm still not a fan of Cash for Clunkers, but our problems go a lot deeper than losing 700,000 clunkers out of over 7 million vehicles produced for the US market every year and compared to the 247 million vehicles running in the US.