Cash for Clunkers Caused Auto Industry to Lose Money

August 12, 2014

In 2009, the federal government instituted Cash for Clunkers, a stimulus program intended to boost the U.S. economy while encouraging consumers to purchase environmentally-friendly vehicles. By trading in their SUVs for a more fuel-efficient vehicle, automobile purchasers could receive a government credit of up to $4,500.

Most buyers weren't exchanging their SUVs for expensive cars like Priuses. Instead, MarketWatch reports that the Toyota Corolla was the top pick among all car buyers during the program. According to a study from Texas A&M University economists Mark Hoekstra, Steven L. Puller and Jeremy West, the automobile industry saw its revenue drop by $3 billion in less than a year.

Industry revenue fell because most fuel-efficient cars are small and relatively inexpensive. Car buyers were induced to purchase the less expensive cars, such as the Corolla, because of the government subsidy they received upon purchase.

According to the authors, "Environmental objectives undermined and even reversed the stimulus impact of the program."

Source: Ruth Mantell, "'Cash for Clunkers' stimulus stalled auto-industry revenues, research says," MarketWatch, August 8, 2014.

 

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