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Posted: August 11, 2009

Cash for clunkers offers stimulus program that works

Program has proven its value

Tim Jackson

When it comes to the federal stimulus package, it’s often been hard to point to concrete and immediate benefits.

In some cases, it seems to a skeptical public that billions of tax dollars were sucked into a black hole, with nothing to show for their investment.

Not so when it comes to the so-called “Cash for Clunkers” program, officially known as the Car Allowance Rebate System (CARS).

While costing just a tiny sliver of the total amount of the overall stimulus package, CARS has produced immediate and dramatic results. So much so, in fact, that the Obama administration and Congress were caught off guard and had to supplement the $1 billion program, which was being drained much quicker than anyone had predicted.

Coming during the longest and most severe downturn in the automobile industry history, this was just what the economy needed in order to stem the tide of massive job losses and start turning the corner toward positive results.

Nationally, about 900 franchised dealerships closed in 2008, reducing the U.S. total to about 19,000. Another 1,100 dealerships are expected to close in 2009. Closer to home, five Colorado dealerships closed in 2008 and 19 dealerships in the state have already closed so far this year.

The challenge facing the auto industry is not just an issue for traditional manufacturing states like Michigan.

According to an analysis of the economic impact of new vehicle dealers on Colorado in 2007:

  • The automobile retailing  industry generated a total of nearly 30,000 jobs in the state, with the  average dealership providing jobs for 73 people.
  • Colorado residents earned  more than $1.5 billion as a result of automobile dealership operations.
  • Colorado automobile  dealers (through taxes collected or paid) generated more than $418 million in  revenue for the state and local governments.
  • In fact, sales of new and used  cars, as well as parts and service, are the single largest source of sales tax  revenue for almost every state, city and county government nationally. 
  • Colorado dealerships  contributed over $6.1 million to charitable causes.

But like the best stimulus programs, the cash for clunkers initiative has benefits that extend far beyond the economy.

By getting older gas guzzlers off the road, it’s helping the nation breathe easier, both literally and figuratively.

The program is designed specifically to get drivers into more fuel efficient vehicles and it is working. A U.S. transportation department analysis shows that through Aug. 1, cars sold under the program averaged 25.4 miles per gallon, a 61 percent increase over the 15.8 mpg average of the trade-ins, according to Automotive News.

Besides saving drivers money at the pump, that means that the nation is becoming less dependent on foreign oil.

Furthermore, carbon emissions – which have been tied to global climate change – are commensurate to a vehicle’s fuel economy, so cars that get more miles per gallon emit less carbon.

Although the CARS legislation did not specifically target smog-producing vehicles, it will have the added benefit of permanently removing vehicles that contribute to high ozone levels. Ozone causes respiratory problems and endangers people with asthma.

While vehicle exhaust is just one of the many components of ozone pollution, Colorado will benefit from any reduction. Today’s new cars are up to 99 percent cleaner than cars of just 15 years ago.

Could the CARS program have been administered better? Absolutely. The unforeseen popularity put a strain on the system, although the resulting problems primarily fell on the shoulders of dealers, not consumers.

Cash for clunkers has proven its value – to the economy, to the environment, to Colorado – and it deserved to be continued. 

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Tim Jackson is the president of the Colorado Automobile Dealers Association.

Enjoy this article? Sign up to get ColoradoBiz Exclusives. The opinions expressed in this article are solely that of the author and do not represent ColoradoBiz magazine. Comments on articles will be removed if they include personal attacks.

Readers Respond

Could have been a lot better if dealerships were actually paid by the government. What a mess that ended up being. By Tony on 2011 01 13
I have a hard time imagining how the nation has been hoodwinked into believing the CARS program is a net benefit. One cannot create wealth by adding to the debt. While most of the 'clunkers' were probably below the median value for a vehicle, they each were a tangible asset with very real value to each owner. Admittedly, the average new vehicle represents a greater amount of wealth. However, it already was in existence. Now each of the 'clunkers' has, by law, been destroyed. Wealth, on the net, has been destroyed. This is viewed as a positive? Insanity. While each clunker, by law, consumed more fuel per mile than the vehicle that replaced it, none are stopping to consider the amount of fuel required to convert raw materials into a new vehicle. How much energy does it take to covert several dozen (hundred? thousand?) cubic yards of earth into an engine block? While I don't know the answer to that question, I am quite sure it is more than several thousand miles worth of the incremental mileage benefit. And where are these funds coming from? Much like the TARP funds, they are being created as a debt left for future generations. Further, I read that a larger proportion of so-called 'foreign' vehicles are being sold under this program than before the program's implementation. In other words, the people of this nation are subsidizing foreign automakers in preference over our own domestic industry. And when this program, after being extended for several billions, or several dozens of billions (the call will surely come) more comes to an end, what then? The artificial tampering in the marketplace being over, all the artificially hastened demand having expired, what are we left with? Like any bubble (you'd think we'd learn), this will result in lowered demand to make up for it. What then? An even larger crash in demand for vehicles. On top of this, an artificially expanded production base for this lowered demand. The net result will be more negative than if merely left to market forces to correct itself. No, as viewed from any direction, the CARS program is destructive in all respects. By Nunya Bidnez on 2009 08 13
No, I don't have an answer to the question of costs to administer the program - but I'd like to thank Tim for the contribution. "Stimulus" has become synonymous with a 'opaque', as in a lack of clarity as to where taxpayer dollars going, how they will be spent, and what will the direct impact on the economy be. Seems that when we have a program that readily is highly transparent and popular, it's precisely the type of effort that should be supported. By Publisher on 2009 08 12
To Tim Jackson: My Dad bought a new truck under the cash for clunkers, and I think it is a good program. My question is: of the $4500 that made it to the consumer, Any idea how much it really cost to distribute the first 2billion? THis would include everything from administration, to disabling the old cars, to the cost of the senate to authorize this bill? I've heard numbers as high as 10X? By the way, I really enjoy the magazine! thanks. garry By garry mcclelland on 2009 08 11

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