Farewell To Clunkers

Our View: Expiring Federal Incentives Did Their Job, But Will Good Times Last?

August 24, 2009

Going, going, gone.

The $3 billion "Cash for Clunkers" program officially ends at 8 o'clock this evening and no doubt across the nation last-minute deals will be struck today as dealers remind customers that a genuinely once-in-a-lifetime incentive is about a disappear.

On balance, the program as been a huge success, generating car sales at a time when automakers had hit rock-bottom. The preliminary numbers tell the tale: As of last Thursday, 457,000 transactions worth $1.9 billion or about $4,000 per trade-in.

The boost in car sales has been so sudden and so substantial that it's caused some General Motors and Ford factories to call back laid-off workers and crank up production in response. Dealer lots are no longer the sad, lonely and forgotten outposts of a few months ago.

Cash for Clunkers - or as it is more properly called, the Car Allowance Rebate System - was far from perfect. Officials were ill-prepared for the massive paperwork requirements, and the government has been slow to reimburse cash-strapped dealers.

The impact on gasoline consumption and the environment will probably prove negligible - the mileage standards were too low to think otherwise. And the loss of affordable cars (the law requires all the clunkers to be junked) could have a negative effect on low-income families looking to buy a potentially now-more-expensive used car in the near future.

Obviously, government can't afford to keep handing out big checks to people for buying cars. It may have generated a whirlwind of consumer buying, but the giddiness could never be sustained - nor was it designed to be. That's just the point.

In retrospect, President Barack Obama's $787 billion stimulus package should probably have offered more such consumer-oriented incentives. It not only pumped money into the economy quickly, but it has helped change consumer attitudes. After all, it takes a bit of faith in the economy to buy a new car.

Naysayers will counter that government shouldn't pick one industry to so bless with handouts, and with most any other line of work, they'd probably be correct. But the nation's stake in car-making is considerable (taxpayer investment in GM alone is more than 10 times greater than the cost to buy all those clunkers), and so the industry's recovery is critical.

Even better is the possibility that the excitement generated by the uptick in car-buying will be felt in other sectors of the economy. That may be too much to expect from a program that represents such a tiny, tiny fraction of our gross domestic production.

Make no mistake, this was no cure for the ailing auto industry (sales are likely to slouch, if only in the short-term, after today), but there's a restored sense of optimism in the air. That alone has proven the program's value.

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