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Cash for Clunkers: Success?

This is a follow up post to the Cash for clunkers, otherwise known as Car Allowance Rebate System (CARS) posted July 23,2009.   Cash for clunkers program was expected to last till November 1,2009 with the $1 billion fund they received from the government.  However, the program seems to have been more successful than Congress expected.  In fact, "Cash for Clunkers" may have to be suspended due to lack of funds.

The House and President Obama approve of granting the auto industry an additional $2 billion to continue the program for at least another month or until the economy starts to recover from the current recession.  Many auto dealers and consumers await for the Senate's approval of the program.

"I want to thank leaders in the House of Representatives for working quickly and in a bipartisan way to pass legislation that will use Recovery Act funds to keep "Cash for Clunkers" going.  This program has been an overwhelming success, allowing consumers to trade in their less fuel efficient cars for a credit to buy more fuel efficient new models. It has given consumers a much needed break, provided the American auto industry an important boost, and is achieving environmental benefits well beyond what was originally anticipated.  The program has proven to be a successful part of our economic recovery and will help lessen our dangerous dependence on foreign oil, while reducing greenhouse gas emissions and improving the quality of the air we breathe.  I urge the Senate to act with the American consumers in mind to pass this important legislation."

- President Obama, Statement on "Cash for Clunkers" - July 31, 2009

James L. Gattuso, a senior fellow in regulatory policy at the Heritage Foundation, a conservative think tank showed his doubts about the positive effect this car incentive program will have on the overall economy when he stated:

"This proves one thing: If you hand out money on the street corner, people will take it.  The money has to be taxed or borrowed. It doesn't come from thin air. You aren't going to fix the economy by the government being the consumer and paying for consumption directly.Is the government going to be the consumer of last report? I don't think that's a viable economic plan."

A few liberals complain the mileage standards are set too low.   Conservatives, such as Senator McCain claim this program is another auto bailout attempt.  Yet, with the recent support from Senator Susan Collins and Senator  Dianne Feinstein , who originally opposed the program due to previous beliefs the mileage standards were set too low, there is still hope that the Senate may vote on providing more stimulus funds for the car incentive plan.  Below is a joint statement from the two senators regarding Cash for Clunkers.


"The extraordinary reaction to the 'Cash for Clunkers' program demonstrates that consumers do want to purchase more fuel efficient, less polluting vehicles," they said.



"We will insist than any extension of the program requires that the minimum fuel economy improvement for newly purchased vehicles be at least two miles per gallon higher than it is under the enacted clunkers program," they said. "It is also important to include lower-income consumers who are disadvantaged under the current program. So, we would also include a voucher for the purchase of fuel-efficient used vehicles."


Pete Morici, an economics professor at University of Maryland, claims "Cash for Clunkers" program would have been more successful if our program was similar to China's stimulus package. "China did a masterful job of using its stimulus package to promote domestic production. The Obama stimulus package merely promoted the expansion of the federal bureaucracy."

However, there are still signs that ''Clunkers" has helped bring up sales for several car dealerships.  According to ABC news, July sales of Ford, Lincoln and Mercury light vehicles rose 1.6 percent since last year.  Though the same can't be said about other dealers such as Chrysler, GM, and Honda the rate of decline has become less severe.  GM declared a sales drop of 19% compared to last year.

Read the full article for more information regarding thoughts on whether or not Cash for Clunkers will stimulate or harm the overall economy.

Please feel free to state your ideas by leaving us comments on whether or not Congress should approve of an additional $2 billion to support the Clunkers program.

Tags: Bailout, Class, Economy, Emissions, Gm stakeholders, Policy, Transportation

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