Cash for Clunkers: who benefits?

The Car Allowance Rebate System, better known as “Cash for Clunkers,” is a federal program that gave car buyers a rebate of up to $ 4,500 on a new car if they trade in an older, less fuel efficient car. The program is meant to stimulate the ailing U.S. economy and reduce pollution caused by cars by committing U.S. tax dollars to the foundering auto industry. Late last month, the federal government ended the Cash for Clunkers program two weeks early because the three billion dollars budgeted for the program had been nearly exhausted. Although hundreds of thousands of Americans took advantage of the rebate opportunity to purchase a new car, and nearly the entire budget was spent, it isn’t clear that Americans (and America) will emerge both economically and environmentally healthier. In this profile, CHW examines the impact of the Cash for Clunkers program on our nation’s health and the environment.

Clash for Clunkers was dramatically more successful in engaging new car buyers than Congress or the White House had imagined: the initial one billion dollar budget intended to last through Labor Day was exhausted so quickly that after just 10 days, Congress funneled another two billion dollars into the program to keep up with demand.

President Obama has declared the program a “proven success” citing the “50% increase in fuel economy” and “$700 to $1000 in annual savings for consumers in reduced gas costs alone…”1 The White House’s assessment of the Cash for Clunkers program has reported some large and impressive numbers to back up their declaration of resounding success: nearly 700,000 cars were sold, $2.9 billion  spent,2 and an estimated 42,000 jobs will be created or saved during the second half of the year as a result of the Cash for Clunkers program. Motor vehicle output added 0.20 percentage point to the second-quarter change in real GDP.3

Has Cash for Clunkers Met its Goals?

Although hundreds of thousands of Americans took advantage of the rebate opportunity to purchase a new car, some environmentalists question whether Americans (and America) will emerge both economically and environmentally healthier. They focus on two issues. First, buyers who took the rebate still had to buy a brand new car at costs coming in somewhere around $25,000 to $30,000. This might have simply shifted consumers spending from one place to another. So instead of spending additional money that they wouldn’t have, new car buyers might now be unable to spend on “appliances, clothes and other stuff that consumers will not buy…now that they have the burden of lease or loan payments for their new vehicles.” 4 If this effect is significant, Cash for Clunkers may end up being simply a government plan to favor the success of the auto industry over the many other industries whose goods American could consider consuming. It is also estimated that 60 percent of the cars purchased under Cash for Clunkers would have been purchased this year anyway, meaning that we might see a post-Clunkers lull in business.4

What about the impact on air pollution? The difference between the average miles per gallon of the trade-ins versus the new cars bought through Cash for Clunkers was about nine miles per gallon.5 According to Jack Hidary, an architect of the Clash for Clunkers program, $700 is the gas savings for driving a car that is 10 miles per gallon more efficient, so it is likely that many buyers will save money by getting a new more fuel-efficient car. The Cash for Clunkers program, however, allowed consumers to trade vehicles in for cars that were only slightly more fuel-efficient.  In the case of passenger cars, consumers could use the rebate to purchase a new car with just four miles per gallon more efficient gas use. In the case of light-duty trucks, the rebate was good for new vehicle purchases that got just one or two additional miles per gallon, emphasizing that reducing emissions was a secondary priority for the program.6

But even if new cars purchased under the program were significantly more fuel efficient, it seems unlikely that the program’s impact will be big enough to improve air quality on its own. One columnist noted that if the new cars purchased under the rebate program get “ten miles per gallon more than the Clunkers they replace, the reduction in gasoline consumption will cut our oil consumption by 0.2 percent per year, or less than a single day’s gasoline use.” 4 Few interventions of any kind can contribute to significant, long-term change unilaterally, so it is not surprising that a program like Cash for Clunkers can’t single-handedly make drastic environmental improvements. Perhaps the only undoubted success of Cash for Clunkers has been its impact on the auto industy: Ford and General Motors saw ten and 21 percent increases in sales in August compared to July.7 Toyota posted even bigger gains.

Measuring Up a “Proven Success”

So was Cash for Clunkers good, bad, or a wash? It is worth remembering that public policies to improve the economy and environment are implemented because unemployment and pollution undermine the long- and short-term health and well-being of human, not because the government or civil society has an interest in the physical environment or job markets in and of themselves. Therefore, measuring the success of the Clash for Clunkers program must compare the opportunities provided and lost to improve public health.

Several news articles have mentioned the safety benefits of Cash for Clunkers: newer cars have better and more safety features, therefore the program will put safer cars on the road. As Consumer Reports mentions:

“…450,778 SUVs and other light trucks that likely lacked electronic stability control and other modern safety equipment [were taken off the road through Cash for Clunker]. The National Highway Traffic Safety Administration has estimated that making ESC standard on new cars would save as many as 10,000 lives a year. This program has taken a significant step toward that goal.”5

 

This is great news, but thinking about vehicle safety also begs the question: why should the federal government spend three billion tax dollars on bailing out an industry whose products kills and injures so many Americans? In 2008, there were 37, 261 people killed in motor vehicle crashes (a record low) and nearly 2.35 million injured. By those figures alone, the morbidity and mortality caused each year by motor vehicles dwarfs the potential safety gains from Cash for Clunkers. In 2007, a total of 288 people were killed on mass transit of any kind, a number less than 1% of those killed by passenger vehicles.8 In 2006 there were 19, 238 people injured on all forms of mass transit, 122 times fewer injuries than the more than two million caused by motor vehicles.9 Yes, these are absolute numbers- so how do these numbers compare when looking at rates? Motor vehicles kill five times as many people per passenger mile than mass transit.10

Public transportation systems, especially light and heavy rails systems, also create less fuel emissions than motor vehicle, and therefore provide a much longer-term investment in environmental health than Cash for Clunkers can achieve. What if Congress had instead given the auto industry $3 billion to invest in developing new capacities for making mass transit vehicles?

The Cash for Clunkers program also represents a lost opportunity to improve public health in other ways. The nearly three billion dollars spent to boost the auto industy did very little for a key piece of our economic crisis: inequality. The proportion of wealth and earnings by the richest 10% of our communities has steadily risen in the past 30 years. This growing inequality was intimately connected to the underlying causes of the current economic crisis: predatory lending and banking practices that promised to earn executives and their brokers exorbitant amounts of money. Inequality has been documented in public health research as a causal factor in social and health outcomes as diverse as teen birth and mortality. The Cash for Clunkers program, however did little to provide a way for low-income folks to benefit from the government commitment to stimulate the economy. For example, despite the claimed objective to get “clunkers” off the road, cars older than 25 years could not be traded in for the rebate, even though they are the most-polluting, and least fuel efficient and safety advanced vehicles. Also, all cars that were traded in, even if they were fairly new and running well, had to be destroyed under the program’s rules, bringing up the questions of what to do with 700,000 newly junked cars. Will lower-income families who cannot afford a brand new car now have more trouble finding a used (but less than 25 year old) car at all, since trade-ins have to be legally destroyed? Will the destroyed cars pose another set of environmental problems?

As one columnist argued: “…By mandating the destruction of trade-ins, Congress removed 700,000 cars from the used-car market, inevitably driving up prices of the cars that lower-income consumers tend to buy.”4

While no data have come out showing this prediction to be true, it seems that the Cash for Clunkers program did not take advantage of what we know about public health: policy approaches to reduce inequality have economic and health benefits. These same policy approaches, however, also require abandoning the government’s monetary, legislative, and otherwise political support of corporations that harm health. From the subsidizing of harmful industries like the auto industy to the extreme financial deregulation of a decade ago, these pro-corporate polices may appear to be bids for a strong economy, but the impacts are much different. For example, financial deregulation led to the lending practices that disproportionately preyed upon low-income communities and communities of color, and led to the current economic recession.

How About Cash for Buses and Subways?

Why, then, should the federal government’s stimulus efforts ensure that the auto industry survives, as opposed to investing in any other businesses or industries in the United States? An alternative to bailing out a failing industry is to invest in an industry that has seen sharp growth in the past year: mass transit. Currently, mass transit systems across the country are experiencing tremendous cuts to their already inadequate budgets. For example, in July alone the New York City Metro Transit Authority announced 360 jobs cuts, despite having experienced a significant uptick in ridership since the U.S. economy took a downturn. Although mass transit systems are efficient and affordable for riders, urban municipalities that currently maintain such systems do not have sufficient funds to maintain and upgrade them, and fare revenues cover only from 20 to 50% of the costs of maintaining the transit systems.11

src=”uploads/images/old_archives/img/mass_transit_promotion.png” alt=”mass transit promotion by Metro Library and Archive” hspace=”10″ vspace=”5″ width=”250″ height=”250″ align=”right” />A stimulus package that invests in the research, business planning, and workforce to upgrade and create effective mass transit systems has multiple benefits. Cash for Clunkers may have caused an uptick in the employment and earning of auto industry workers, but as many have pointed out, nearly 60% of the sales made under Clash for Clunkers would have happened in the next year anyway, leaving auto workers to brace for another severe dip in demand. Investing in mass transit infrastructure, on the other hand, will lay the groundwork for strong job markets in a variety of fields (from engineering to sanitation) required to support smart, efficient public transportation. The recession has caused a surged in mass transit use across the country, causing its use to reach a 50-year high11,12 and therefore providing a key opportunity to shift transportation trends in the U.S. towards the long-term, permanent growth of these infrastructures. In fact, the Obama Administration’s stimulus package did commit just over eight billion dollars to capital improvements in mass transit systems, including high speed rail lines.12,13 Hopefully this infusion of funds represents more than a temporary stimulus, but a longer-term investment in health promoting industries than can provide sustainable employment, and provide for safe, effective transportation for many times more Americans than just those who can afford a new car.

The gains to the health of U.S. economy and environment as a result of the Cash for Clunkers program can be considered modest at best, and at worst, the U.S. government’s political investment in supporting an industry whose products, cars and trucks, directly contributes to poor health in several ways. The need for government to spur spending, and therefore job growth, could have dovetailed with environmental and public health goals much more effectively. Public policies that foster investments in public transportation is just one of those alternatives. Strengthening mass transit will stimulate job growth and retention in an industry that can be counted on to continue to experience thriving market demand, reduce American consumers’ impact on the environment, and promote public health.

 

References

1 Hedgpeth D; Bacon P.With Senate Vote, Congress Refuels ‘Clunkers’ Program. The Washington Post August 7, 2009. Available at: http://www.washingtonpost.com/wp-dyn/content/article/2009/08/06/AR2009080601656.html. Accessed August 16, 2009.

2 Puzzanghera J; Zimmerman M. ‘Cash for clunkers’ final tally: nearly 700,000 cars sold. Los Angeles Times. Available at:http://www.latimes.com/business/la-fi-clunkers27-2009aug27,0,2161518.story?page=2 Accessed August 31, 2009.

3 Bureau of Economic Analysis. Available at: http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm. Accessed September 1, 2009.

4 Stelzer I. Seven lessons of Cash for Clunkers’ failure The San Francisco Examiner. August 28, 2009. Available at:http://www.sfexaminer.com/opinion/columns/Irwin_Stelzer/Seven-lessons-of-Cash-for-Clunkers-failure-55595162.html. Accessed September 1, 2009.

5 Evarts E. Consumer Reports. August 27, 2009. Available at: http://blogs.consumerreports.org/cars/cash-for-clunkers/index.html. Accessed September 1, 2009.

6 Fact Sheet: Cash for Clunkers Committee on Energy and Commerce. June 8, 2009. Available at:http://energycommerce.house.gov/Press_111/20090505/
cashforclunkers.pdf
. Accessed August 2, 2009.

7 Barth L. September 2, 2009. Available at: http://blogs.consumerreports.org/cars/cash-for-clunkers/index.html. Accessed September 2, 2009.

8 United States Department of Transportation Federal Transit Administration. Available at: http://transit-safety.volpe.dot.gov/Data/samis/default.asp?ReportID=2. Accessed September 1, 2009.

9 Bureau of Transportation Statistics. Table 2-33c: Table 2-33a: Transit Safety Data by Modea for All Reported Incidents. Available at: http://www.bts.gov/publications/national_transportation_
statistics/html/table_02_33a.html
. Accessed August 25, 2009.

10 Morris EA.The Danger of Safety. Freakonomics Blog from The New York Times.July 2, 2009. Available at:http://freakonomics.blogs.nytimes.com/2009/07/02/the-danger-of-safety/?apage=2. Accessed September 1, 2009.

11 Public Transit Faces New Pressures.  March 10th, 2009. Available at:http://www.pbs.org/wnet/blueprintamerica/reports/transit-in-trouble/video-public-transit-faces-new-pressures-part-one/485/. Accessed September 1, 2009.

12 Epstein, D. For Ailing Transit Systems, Stimulus Windfall Is a Mixed Blessing. June 21, 2009. Available at:http://www.propublica.org/ion/stimulus/item/for-ailing-transit-systems-stimulus-windfall-is-a-mixed-blessing-621. Accessed September 2, 2009.

13 Hochberg A. A Hitch For Rail Riders: Getting To Final Destination. September 2, 2009. Available at:http://www.npr.org/templates/story/story.php?storyId=112467963. Accessed September 2, 2009.

 

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