Is the "Cash for Clunkers" Program an Artificial Success?

There is no question that the Cash for Clunkers program is a success from a consumer standpoint. The program, which originally cost $1 billion, provides $3,500 to $4,500 toward the purchase of new, fuel efficient vehicles when buyers trade in their new or old gas-guzzling cars or trucks.

What is up for debate, however, is whether the program has helped the economy, the environment and American automakers the way its creators envisioned.

Of these questions, perhaps the most important is whether the program will help or hurt the American vehicle market in the long run.

The Real Winners
Ford announced a 2 percent hike in sales for the month of July -- its first sales increase in almost two years. And while the other Big Three automakers (General Motors and Chrysler) are doing well, they're accounting for less than half -- 47 percent -- of the program's total sales. The companies reaping the biggest rewards from are foreign-owned manufacturers, with Toyota leading the pack.

According to the US Department of Transportation, the top five cars purchased under the program have been the Ford Focus, the Toyota Corolla, the Honda Civic, the Toyota Prius and the Toyota Camry. In August, the Corolla threatened to overtake the Focus for the top spot. The result is that while most of the vehicles sold under the program are manufactured in the US, most of the profits from the program are going overseas.

Artificial Success?
On Aug. 6, 2009, the Senate dumped another $2 billion into the program, which chewed through its first billion dollars during one week in July. The additional infusion of cash is expected to keep the program running through Labor Day ... hopefully.

The program has shot car sales estimates through the roof -- to nearly double the amount estimated during the first half of the year. In January, analysts expected car sales to reach 10 million for 2009. Thanks to the Cash for Clunkers program, however, analysts now predict that number to be around 19 million. While this is good news for domestic auto manufacturers, who, just months ago, were building cars for no particular reason, questions remain about whether the program is setting the American auto industry up for failure by artificially inflating sales. The program cannot continue to be funded at $1 billion to $2 billion every month forever, which leads conservatives to wonder: when the program is ultimately dissolved, will car sales go with it?

The Used Car Market
While new car dealerships are experiencing a rush of customers eager to cash in on the program, pre-owned dealerships, which were doing OK before the program was implemented, are now beginning to suffer losses. One dealership estimated that one in every three customers coming onto the lot in July 2009 asked a salesperson about the program.

Feigned Progress?
As for the environmental impact of the program, that is also questionable. The US DOT estimates the average fuel economy of vehicles purchased through the program is 25.4 miles per gallon, which is up from the 15.8 miles per gallon of vehicles turned in for demolition. This accounts for a 9.6 average increase in fuel economy, which represents at 38 percent improvement, considering 83 percent of the "clunkers" traded in under the program are trucks and SUVs and 60 percent of the newly purchased vehicles are cars.

Regardless of fuel efficiency, however, vehicle exhaust still pollutes the atmosphere. While any progress is good, the only way to successfully reduce emissions is to drive less and consume less fuel -- in other words, use public transportation or car pool -- and that is something the American public is simply not ready to do.

The Real Environmental Impact
While not directly related to the program, some speculate that hybrid vehicle batteries -- especially the bigger ones found in hybrid SUVs -- could account for an equally severe kind of environmental damage that could have lingering effects on the environment as the batteries corrode after disposal.

According to the Washington Post, climate experts aren't impressed with the "Cash for Clunkers" program, claiming its net effect on the environment will amount to nothing more than a blip.

Cash for Clunkers: Boon or Bane?
While the good intentions of the program are clear, the reality is that the program is more of a political solution to a prickly problem than an environmental one. Until a long-term stable solution can be found to help both the environment and the American auto manufacturers, programs like this will continue to do more harm than good.