Were "clunker" trade-ins a good thing for the stalled economy? (Photo: NYT)

The GAO report
casts doubt on several of the Obama administration’s claims about the
success of the "clunkers" plan, including the extent of its economic
benefits and the emissions savings achieved by replacing older autos
with more gas-sipping vehicles.

While the GAO’s nonpartisan auditors concluded that "clunkers"
program achieved its overall goal of promoting economic growth, they
could reach no consensus on how to measure that stimulative effect. A
laudatory "clunkers" report
from the White House Council of Economic Advisers reached similar
conclusions concluded that 64 percent of "clunkers" sales were
"incremental," meaning that the trade-ins would have occurred
regardless of whether government subsidies were on offer.

The
U.S. DOT, using its own surveys, concluded that 88 percent of trade-ins
under the program were effectively pushed forward in time; however, the
GAO questioned the reliability of that data because the department "did
not follow some generally accepted survey design and implementation
practices." (ed. note. Streetsblog Capitol Hill contributor Ryan Avent made similar observations in August.)

Apart
from its effect on vehicle sales, the trade-in program was also
credited by the administration with increasing the U.S. gross domestic
product. But the GAO found that assertion equally difficult to prove,
citing interviews with auto executives who confirmed only that
"clunkers" sales decreased their inventory. "[I]t is not clear how much
of the reduction in inventory led to increased automobile manufacturing
and, therefore, a positive impact on Gross Domestic Product," the
auditors wrote.

The GAO found more holes in the administration’s assertions about pollution savings achieved by the $3 billion "clunkers" plan.

The
U.S. DOT concluded that the average beneficiary would consume 10
percent less fuel as a result of trading in their older autos, but that
figure was estimated using the same flawed methodology that resulted in
the 88-percent "incremental sales" figure.

In addition, the
U.S. DOT did not attempt to measure the emissions generated by
scrapping the traded-in "clunkers" and manufacturing the new vehicles
purchased, which "may offset some of the program’s effect on emission
reductions," according to the GAO.

Interestingly, the congressional Democrats who helped pass two rounds
of "clunkers" spending depicted the GAO audit as a vindication of their
efforts. Rep. Betty Sutton (D-OH) issued a statement calling the
program “an overwhelming success," suggesting that the environmental
effects of the auto trade-ins were ancillary:

The
["clunkers"] program was about more than just cars. It was about
people. It was about our friends and neighbors who depend on
auto-related jobs to support their families. And,
it was about our communities that depend on auto-related jobs for their
tax base to support our schools, police, fire and other city services.

(Photo: The Slatin Report)

Now it seems that the tax credit for new home buyers, opened up to
even existing homeowners as part of an $11 billion expansion passed in
November, is having a similar effect on the homebuilding industry.

As MarketWatch reports
from the Las Vegas International Building Show, homebuilders are still
mourning the housing bubble that popped so perilously as subprime
mortgages imploded, but they are cautiously optimistic about this year
as compared with 2009. Still, mitigating factors persist — and here’s
one:

Payback from the expiration of the home-buyer tax credit.
"The tax credit is pulling people forward who were in the market
anyway. So the sales pace isn’t quite as vibrant as suggested by the
raw data. There could be a payback that materializes (in July) when the
current version expires," Sullivan said.

Unless, to the chagrin of environmental groups and many, many voters
who rent, Congress decides to extend the sprawl-enticing tax credit one
more time in the summer. Lawmakers are often reluctant to let temporary
tax credits fade away when industries are lobbying in favor of their
extension — even if the underlying economic logic is demonstrably
shoddy.

And
if Transportation Secretary Ray LaHood’s comments at the Detroit Auto
Show this month are any guide ("You see no criticism of ‘cash for
clunkers’ in America"), even the auto rebates could make a return.

(Photo: Newsday)

In
part this is because the program looks like a big success, and
certainly congressional leaders and the White House have not been
bashful about touting it as such. The original $1 billion allocation
for the program was exhausted within days, and as sales data for August
begins to emerge it is clear that car sales experienced a banner month.

Was CARS a good policy, all things considered? Let’s look at a few of the latest numbers on the program.

There
were approximately 1.17 million vehicle sales in August, which works
out to a seasonally adjusted annual rate of about 14 million vehicles.
June’s sales rate was under 10 million and near the recession low,
while last August’s rate was also about 14 million. Meanwhile, the
August norm in good times was about 16 million.

What does
that say about the value of the program? Well, let’s say that August
sales would have matched June’s sales in the absence of CARS. They
almost certainly would have been higher given economic improvements
between June and August, but for argument’s sake, let’s say they were
the same. We can then estimate how many additional sales CARS produced
and the actual subsidy per new sale.

Here‘s economics blogger Calculated Risk:

If Edmonds.com is correct,
and total sales were 1.17 million…in August, then the tax credit
only generated about 320 thousand extra sales. Of course some regular
car buyers might have put off a purchase to avoid the rush in August,
so this isn’t perfect, but instead of costing taxpayers $4,170 per car
(as announced by DOT), the cost to taxpayers per additional car sold
was close to $7,200.

In other words, CARS just didn’t generate that many new sales. Much of the subsidy went to buyers who would have purchased anyway.

As
it turns out, much of the subsidy also went to people who weren’t
interested in purchasing GM or Chrysler vehicles. While year-over-year
sales figures rose in August for Ford, Honda, and Toyota, sales declined by
15 percent and 20 percent respectively for Chrysler and GM. To the
extent that CARS was designed to help struggling American automakers,
it doesn’t seem to have had the desired effect.

Particularly worrisome is today’s report
that sales fell precipitously in the last week of August — after the
CARS program ended. Rather than generate momentum for the automobile
industry, CARS may have primarily moved sales around. To a certain
extent, it might also have been counterproductive. How so?

Given fixed supply, a purchase subsidy will often just lead to an increase in price:

Jeremy Anwyl, CEO of the auto Web site Edmunds.com, said dealers and
automakers clearly gained from the big boost in sales. But while the
incentives helped consumers, average prices for vehicles went up as
buyers less concerned about prices rushed to take advantage of the
rebates.

Inventory shortages from the popular program could keep
prices high and drive down new vehicle sales. "We have created a sales
bubble and now that bubble has burst," Anwyl said.

And
while Transportation Secretary Ray LaHood claimed that CARS saved jobs
and the the inventory draw-down would lead to increased production,
automakers are likely to be cautious in building new vehicles if demand
appears unsustainable. The White House’s claim that CARS will boost
third quarter output by 0.3 percent to 0.4 percent will not prove
accurate if September sales fall back below trend.

And then
there’s the environmental effect of the plan. Much attention has been
paid to the fact that purchased vehicles were some 9 miles per gallon
more efficient than traded-in vehicles. As I’ve noted before,
much of that gain would likely have taken place without the program,
based solely on the fact that oil prices rose steadily over the past
decade.

One pair of economists estimated
that the carbon savings from the CARS program worked out to roughly
$596 per vehicle — well below the voucher values of $3,500 or $4,500
per new vehicle. Another economist estimated
that the implied cost of carbon under the program was somewhere between
$237 and $500, much higher than what is assumed to be an efficient
carbon price.

No matter how you cut it, CARS was an expensive means to reduce emissions.

That
doesn’t mean that it was a total waste. There was almost certainly some
positive economic and environmental impact from the policy.

But
that $3 billion could have been used elsewhere. Other potential
programs — restoring heavily used transit services trimmed by budget
cuts or funding weatherization programs, for instance — would almost
certainly have been greener and more stimulative.

In the
end, "cash for clunkers" should be understood as a missed opportunity,
politically attractive but far from ideal as policy.

(Photo: AFP/Getty)

General
Motors and Chrysler, which required a combined $65 billion in
government loans before declaring bankruptcy, reported August
year-to-year sales declines of 20 percent and 15 percent, respectively.

Detroit media reports focused
on GM’s 30 percent sales increase between July and August 2009, but the
company’s car sales were down 1 percent even after being "bolstered" by
the taxpayer-funded "clunkers" rebates.

Ford, the lone U.S.
automaker that did not require a government rescue, reported a 17
percent year-to-year sales increase in August. As the New York Times
reported, the company was pleased by one sales jump in particular:

At Ford, sales of the F-series, a large pickup truck popular among
building contractors, rose for the first time since October 2006, a
positive sign for the automotive market and the broader economy, the
company said. Ford sold 13 percent more of the F-series and 57 percent
more of a smaller pickup, the Ranger.

“It may be a glimmer of
hope,” Ken Czubay, Ford’s vice president of marketing, sales and
service in the United States, said on a conference call.

The F-150, the most well-known of the F-series trucks, gets an average of 16 miles per gallon (mpg) of gas. The Ranger gets between 16 mpg and 23 mpg, depending on the engine and transmission. "Glimmer of hope," indeed.

The interior of a D.C. Metro station. (Photo: PlanetWare)

The Live Near Your Work grants being weighed by D.C. would use
$90,000 to offer incentives for 30 local workers to move within 1.5
miles of their office, a half-mile of a Metro rail station or a
quarter-mile of a bus stop.

The program would be an "experiment" along the lines of "cash for clunkers," the city’s Department of the Environment director told the Washington Examiner:

"The biggest driver of how much energy somebody uses is where they
live," said George Hawkins, DDOE director. "We’re trying to get people
to live closer to where they work. It’s not a lot of money, but it’s
something we want to pilot to see how it goes."

Incentive programs that aim to encourage work-accessible living patterns are already in place in Baltimore, Minneapolis, and Chattanooga, Tennessee.

(Photo: AmericaJR.com)

But with auto-industry forecasters predicting a cool 1 million new sales this month for the first time in a year, dealers are loath to abandon the "clunkers" concept that has stoked Americans’ desire for new vehicles — with minor fuel-efficiency gains and expensive environmental payoffs.

A group of auto retailers have begun promoting the "Auto Stimulus Plan," a rebate system paid for by dealers themselves.

The private "clunkers" spinoff offers several features that the government plan was criticized for lacking. It allows consumers to buy used cars, and its rebates are tiered in proportion to the level of fuel-efficiency improvement that is achieved by the trade-in.

The specifics of the Auto Stimulus Plan vary based on state regulations. But a trade-in that provides 2 miles per gallon in greater fuel-efficiency would earn a rebate of 10 percent of the older car’s value, and a 5-mpg improvement would earn a 20 percent rebate, according to a recent Associated Press report.

Unlike the Obama administration’s "clunkers" program, which was questionably touted by the president and his allies as a boon for the environment, dealers involved in the private version make no bones about their priorities.

"[O]ur primary goal is to help consumers that don’t qualify for the government’s program and to stimulate the economy through improved sales, jobs, and spending," Scott Gruwell, an Arizona-based GM dealer, said in a statement today announcing that the Auto Stimulus Plan would continue despite the demise of the "clunkers" plan.

(Photo: MPR)

But
could the administration continue to leave the gas tax untouched while
relying on taxpayer-subsidized rebates to gin up new car sales? That
prospect is a very real one, as two new posts from the Atlantic and the New Republic observe.

The
first post focuses on the government’s plug-in hybrid tax credit, which
was expanded by the economic stimulus law to offer up to $7,500 per
vehicle for the first 200,000 models sold by every automaker.

The
Atlantic incorrectly states that the stimulus allocated $2 billion to
the credit — that number is the estimated cost of the provision, which
has no dollar limit — but the risk remains the same: If GM sells
200,000 of its Chevy Volts, the credit would take $1.5 billion in revenue from government coffers.

If similar successes for the Nissan Leaf
and the upcoming plug-in Toyota Prius follow, it’s easy to see the cost
of the tax credit topping $4 billion. And as "cash for clunkers" showed,
members of Congress are loath to limit popular pro-industry programs
during an economic slowdown for fear of "messing with success" –
regardless of the estimated costs of the benefits in question.

That could lead to an extension of the plug-in hybrid credit to continue stimulating sales, at a continued cost to the already-depleted Treasury. Meanwhile, the less popular option of increasing the gas tax would immediately pay for itself (as my colleague Ryan put it earlier).

The New Republic’s post looks at a still-unpassed proposal for "feebates,"
a combination of taxes on gas-chuggers and rebates for buyers who
choose cars that exceed fuel-efficiency standards. Again, feebates
follow the "cash for clunkers" template by using taxpayer money — the
fees are not guaranteed to offset the rebates and likely wouldn’t if
drivers flock to efficient models — to encourage greener car-buying
behavior.

But even if an "independent mileage benchmark" were used to ensure that the feebates pay for themselves, as the author suggests,
the more prudent course of action would be simply to keep raising
fuel-efficiency (CAFE) standards. Given that a proposal for a 40 miles
per gallon standard fell three votes short of becoming law 20 years ago, the current 35.5-mpg plan appears ripe for an upgrade.

The
issue comes down to political courage: Offering rebates and tax credits
doesn’t require much of it, but raising the gas tax and CAFE standards
takes quite a lot.

Is this Ford Escape the real winner of "cash for clunkers"? (Photo: InfoBarrel)

But as it turns out, those figures relied on a bit of fuzzy (and Environmental Protection Agency-approved)
math. Vehicles were separated according to 4WD, 2WD, and hybrid
varieties, unlike more traditional auto-sales figures that tally all
three, listing only the make and model.

When CNN enlisted
independent auto-industry trackers at Edmunds.com to project the sales
figures if all engine varieties counted as a single vehicle, a funny
thing happened: The top "clunkers" seller went from the efficient
Toyota Corolla to the Ford Escape SUV.

The Escape is
available as a hybrid, which gets 29 miles per gallon and 11.8 barrels
in average annual oil consumption, according to the government’s
fuel-economy tracker. The Corolla gets identical scores.

But the Escape’s conventional varieties get 22 and 24 mpg, with much higher oil use estimates.

The
Edmunds.com study also found that two full-size trucks, the Ford F-150
and Chevy Silverado, would rank in the "clunkers" top 10 if the DOT
counted their multiple varieties as a single vehicle. The Silverado
gets either 15 or 17 mpg, depending on the engine type, while the F-150
gets between 16 and 17 mpg.

In contrast to the DOT’s sales
list, which ranked foreign-made cars in six of the top 10 spots,
Edmunds.com’s adjusted list found that eight of the top 10
most-purchased vehicles were GM, Ford, or Chrysler.

Robert
Menendez (D-NJ), a senior member of the Senate Banking Committee, began
his hearing on transit today by displaying the above cartoon by
Pulitzer prize-winner Tom Toles. The senator’s message parallels
Toles’: In a world where the auto industry can get $2 billion more in one week, what’s to be done about rail’s $50 billion backlog?

Menendez, whose state is one of only four
in the nation where 10 percent of commuters take transit, said
lawmakers should weigh emergency spending authority for the Federal
Transit Administration (FTA) to help local agencies pay for equipment
repair needs that are estimated at $50 billion — for the top seven
urban rail networks alone.

But given the difficulty of wrestling transit’s long-term share of federal money past the
20 percent mark, winning emergency funds for rail would be a very heavy
political lift. So FTA chief Peter Rogoff focused on the more
achievable question of how to best spend Washington’s $5 billion-plus
budget for transit modernization.

"The
current formula" for distributing that money, Rogoff acknowledged, "is
a bit of a hodgepodge. It’s hard to define what the strategic goal of
it is."

Complicating the issue, he added, is that everyone
agrees transit agencies are falling far behind on keeping their
equipment in what the FTA calls "state of good repair," but few parties agree on how to actually define that term.

The
U.S. DOT is currently completing a more in-depth study of transit
modernization needs that aims to single out repair needs linked to
passenger safety, with findings expected early in the fall. Rail safety
has taken on new urgency in Congress in the wake of the D.C. Metro’s fatal crash in June.

Yet looking only at safety risks undercutting transit agencies’ ability to serve ridership that is hitting
record highs. Fixing escalators and crumbling train platforms "might
not be viewed
as safety-critical," Rogoff said, "but it can move people out of
transit and back to highways," thus further clogging the nation’s
already taxed roads.

One
thing that Menendez, Rogoff, and transit officials from four states
agreed on was the need to avoid penalizing agencies making progress on
repair with less federal money. In fact, New Jersey Transit was singled
out by the FTA in May for properly supporting its equipment health.

How
did the state get its transit into top shape? It was simple as
formulating a workable long-term funding plan, NJ Transit executive
director Richard Sarles testified before Menendez.

Given the Capitol’s current focus on short-term stimulus, however, that task is far more challenging than it might seem.

(Photo: AP)

That same day, however, energy analysts were crunching the numbers for Reuters. Even if $2 billion in new "clunker" rebates were offered, they found, the total resulting decline in America's daily oil consumption would be 0.05 percent:

"It has proved to be a highly successful vehicle marketing tool," said Tim Evans, energy analyst for Citi Futures Perspective in New York. "But you would need a microscope to see the demand impact for gasoline from this program because it involves a relatively small number of vehicles."

The Reuters estimate assumes an average upgrade in fuel efficiency of 10 miles per gallon, which is in line with initial auto industry statistics on new trade-ins.

The analysis also assumes 250,000 trade-ins, which the government estimates is roughly the number that took place during the first $1 billion week of the taxpayer-subsidized "clunkers" program. Given the likelihood of new funding for the rebates, however, that 0.05 percent number could double or triple -- for a total daily oil-consumption reduction of 0.15 percent.

The second argument, that offering $2 billion in extra "clunkers" cash would not amount to deficit spending, stems from Democratic leaders' decision to shift the funds over from a Department of Energy (DoE) loan guarantee program.

That strategy was designed to appeal to fiscal hawks who would have a difficult time voting to add to the already trillion-dollar federal deficit. Indeed. Sen. Claire McCaskill (D-MO) already put her leaders on notice (via Twitter) that she could only vote yes on "clunkers" if no new money was spent.

But the DoE loans in question were approved to encourage the development of alternative energy and biofuels, two "green job" creators that have influential allies on Capitol Hill. Senate Energy Committee Chairman Jeff Bingaman (D-NM) is already criticizing the shift as a raid on the clean-energy pot, and Renewable Fuels Association chief Bob Dineen said he wants Congress to promptly put the $2 billion back home at the DoE:

The ethanol industry understands the trying economic times this country finds itself in and thus supports ideas like the "cash for clunkers” program, but is concerned to see the program paid for by depleting the renewable energy loan guarantee program. We hope Congress will move quickly to replenish the fund. One of the advantages of the “cash for clunkers” program is putting more fuel efficient cars on the road, however those new cars should also be running on renewable fuels like ethanol in order to benefit both the changing climate and the domestic economy. For the U.S. long term auto and fuel needs, it seems counterproductive to limit the renewable fuels industry.

Minutes
ago, the House approved $2 billion more in auto rebates by transferring
cash that was already headed for loan guarantees at the Department of
Energy — averting the need to add the new spending to the deficit. The
vote was 316-109.

The last-minute race to keep auto-industry benefits alive, which President Obama is strongly backing,
now moves to the Senate. A bipartisan group there is already
threatening to oppose new "clunkers" money unless its fuel-efficiency
requirements are improved and used cars are approved for purchase
rebates.

Right now buyers can get
a $3,500 discount on new cars that get as little as 22 mpg. Small truck
buyers are only required to improve 2 mpg to receive the same rebate,
achieving a combined city and highway efficiency of 20 mpg.

An
early version of the plan would have allowed the rebate value to be
taken in transit coupons, but the DOT said earlier this week that no
such option would be available.

(Photo: AP)

Lawmakers
approved an initial $1 billion in June to offer taxpayer-subsidized
credits of $3,500 and $4,500 to new car and truck buyers, reportedly
prompting dealers to begin assuming backlogs of "clunker" rebates that
were abruptly cashed in when the program formally began this week.

That
rush to capitalize on the "clunkers" deal has led Democrats as well as
many in the media to frame the program as, essentially, a victim of its
own success.

Rep. Ed Markey (D-MA), co-author of this
Congress’ landmark climate change bill, said in a statement that he
hopes to spur a million car trade-ins: "Cash for Clunkers may have run
out of cash, but America’s
consumers haven’t run out of clunkers."

Sen. Charles
Schumer (D-NY) echoed Markey’s call to keep the program alive, calling
it "maybe even too successful." He suggested giving the rebates "a
tuneup so that we get the most stimulus, conservation, and efficiency
for the buck."

Indeed, the question this morning may not be whether the program gets more money but if environmentally-minded lawmakers heed the warnings of conservation groups and insist on greater fuel-efficiency improvements in order to qualify car buyers for the deal.

Sens.
Dianne Feinstein (D-CA) and Susan Collins (R-ME), who joined Schumer on
a rival "clunkers" bill that would have set stricter fuel standards,
announced last night that they would only support a stronger version of
the program:

We
believe that any extension of the ‘Cash for Clunkers’ program must go
further in advancing the goals of better fuel efficiency and greater
emissions reductions. We will not support any bill that does not meet
these goals.

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.
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.

Collins and Feinstein are likely to face resistance from lawmakers from
auto-producing states such as Michigan and Ohio, who won looser rules
to help resuscitate their local industry and moved environmental
concerns to the back seat.

One
thing is certain: With the House set to depart this weekend for a
month-long recess, prospects of reaching an agreement on more cash for
the program appear slim. But Congress and the White House have proven
themselves willing to go the extra mile to help automakers — so
lawmakers may still pad car buyers’ pockets before leaving town.

The dealer, whose motto is "God, Guns, Guts and American Pick-Up Trucks," says that sales have doubled since the promotion started and declared his dealership a recession-free zone. He also had some choice social commentary in various interviews:

• "There's a bunch of evil in the world and people need to protect themselves."
• "I'd personally like to have a sporting chance, instead of just becoming a victim."
• "Without guns, we are subjects. With guns, we are citizens."
  
• "The only 911 call I need is chamberering a round."
  

Fortunately you can't just walk out of Max Motors with an AK; Muller provides you with a voucher for $450 redeemable at a local gun dealer, where you still have to go through a background check. Maybe I haven't been to a gun show in a while, but doesn't that seems like a lot of gun for so little coin?

No matter what your moral leanings, you have to admit Muller's plan is ingenious marketing, given that, outside of iPhones, guns are about the only thing selling well in this economy under this presidency. He has even given interviews to Al Jazeera, and Russia Today.