Evaluating Cash for Clunkers

November 22, 2013

The Car Allowance Rebate System (CARS), more commonly known as Cash for Clunkers, was a government program administered by the National Highway Transportation Safety Administration (NHTSA) that allowed consumers to trade in an older, less fuel-efficient vehicle for a voucher to be applied toward the purchase of a newer, more fuel-efficient vehicle, say Ted Gayer and Emily Parker, of the Brookings Institution.

  • Depending on the difference in fuel economy between the trade-in vehicle and the new vehicle, program participants received a voucher for either $3,500 or $4,500.
  • After the "clunker" was traded in at the dealership, its engine was destroyed, ensuring its permanent removal from the U.S. vehicle fleet.
  • Nearly 700,000 clunkers were traded in between July 1, 2009 and August 24, 2009 as part of the program.

The primary motivation for the CARS program was to provide temporary stimulus to counter the economic contraction that was occurring at that time, while also reducing fuel consumption and thus emissions. The evidence suggests that the program did indeed incentivize the sale of more fuel efficient vehicles by pulling sales forward from the near-term future.

  • This resulted in a small and short-lived increase in production, gross domestic product and job creation.
  • However, the implied cost per job created was much higher than alternative fiscal stimulus policies.
  • Further, these small stimulus effects do not account for the depletion of the capital stock that resulted from the destruction of used vehicles.

The CARS program led to a slight improvement in fuel economy and some reduction in carbon emissions. The cost per ton of carbon dioxide reduced from the program suggests that the program was not a cost-effective way to reduce emissions, although it was more cost effective than some other environmental policies, such as the tax subsidy for electric vehicles or the tax credit for ethanol.

Source: Ted Gayer and Emily Parker, "Cash for Clunkers: An Evaluation of the Car Allowance Rebate System," Brookings Institution, October 31, 2013.

 

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