Horizon, Host: Ted Simons

August 27, 2009


Host: Ted Simons

Cash for Clunkers


  • Arizona State University economist Tim James will recap how the cash for clunkers program did and how it will impact the economy.
Guests:
  • Tim James - Economist, Arizona State University
Category: Business/Economy   |   Keywords: cash for clunkers,

View Transcript
Ted Simons: The numbers are in, and the U.S. department of transportation is reporting nearly 700,000 car sales in the Cash for Clunkers program. In a moment I'll talk with an ASU economist, but first, David Majure has more on the $3 billion program.

David Majure: The Cash for Clunkers program resulted in 690,114 rebate applications nationwide – worth nearly $2.9 billion. That's a little less than the $3 billion authorized by Congress to run the program. In Arizona, there were nearly forty $40 million worth of applications for rebates of $3500 or $4500 off the price of a new vehicle in exchange for an older vehicle that would be taken off the road and sent to the scrap heap. Of the top 10 new vehicles purchased, most were Japanese models. However, vehicles holding the top four spots are all built in the United States. The Cash for Clunkers transactions resulted in a 58% improvement in fuel efficiency. New cars averaged 24.9 miles per gallon, while the trade-ins averaged 15.8 miles per gallon. When it comes to an economic stimulus, the White House Council of Economic Advisors says the program will boost economic growth in the third quarter of 2009 by three or four 10ths of 1%, and create or save 42,000 jobs in the second half of 2009.

Ted Simons: Joining me now to talk about the economic impact of Cash for Clunkers is Dr. Tim James, a professor of economics at the WP Carey School of Business at A.S.U. Good to see you. Thanks for joining us.

Tim James: Nice to be here.

Ted Simons: How much of an impact -- let's start nationally, and then get to Arizona -- how much of an impact, Cash for Clunkers.
Tim James: I think they've done a -- it's had a fantastic impact. The piece of the stimulus package that's given us the most bang for our buck.

Ted Simons: How bad were car sales before the program, how much better off are they now?

Tim James: I looked at the figures, I think things got so bad that we're almost at the early 1990s levels. In Arizona in terms of dollar sales. It was -- we sort of regressed almost 15 or 16 years in terms of how much sales there were on a monthly basis.

Ted Simons: And that change is literally overnight.

Tim James: Oh, yeah. An amazing impact in terms of sales. Probably jumped 50% in terms of what would have been expected.

Ted Simons: And not only sales of cars that get the rebate, but just getting folks on the car lots.

Tim James: That's one of the added bonuses of the whole program. A lot of people got interested in maybe purchasing a new car, some people went in tried to qualify for the program, discovered their car wasn't within the amount, or they would just not qualified, so they went along anyway, and they looked around the lot and those people bought cars as well. So as far as an auto dealer goes in this state it has been the most significant part of the package so far.

Ted Simons: There has been criticism it's not sustainable. It's like a sugar high. Get a lot right now but later on it's going to fall off more than it ordinarily would have. Your thoughts on that?

Tim James: That might well be true. I mean the proof of that will come in time. I think it's inevitable that some people who would have exchanged their car some time in the next 6 months or a year came in now to find out the extra money was available, so there were some sales lost there. But we needed to do something for the auto industry, and the auto industry has been fantastic in many ways, because it's going to be something which helps out the state's budget in terms of sales taxes.

Ted Simons: As far as new car prices as well, there's the idea that because of an inventory shortage, this is going to cause an increase in new car prices. Are we seeing that?

Tim James: I think there probably is an effect like that whereby all inventory has been sold off and the 2009 inventory is running lower than probably would have been expected without the program. I still think auto dealers are in a difficult circumstance and it is going to be quite difficult for them. If you balance that out, it will increase prices because on the one hand maybe they got rid of some of the sales they made in the future, and on the other hand they've got slightly lower stocks. Hopefully those two things will balance out and people will still be able to get good deals.

Ted Simons: As far as the sales bubble being over, where do car makers, car dealers go from here?

Tim James: That's the $64 trillion question now – I think it is impossible to answer.

Ted Simons: Yeah, you just got to wait and see. Some car dealers are waiting and seeing if they're going to get their rebate money back. Is that working out ok? Are folks finally starting to see the money coming in?

Tim James: Obviously the success of the program has been one of its failings in a sense, because the number of people applying for the rebate has been huge, so the processing has been difficult thus the extensions. And hopefully the whole program will work out as expected.

Ted Simons: I know there was some concern as well that so many of the vehicles that were purchased were foreign made. At least run by foreign auto makers. Talk about that. The U.S. automakers really get helped as much as they could have been if the program had been tweaked?

Tim James: This is an easy question with a complex and difficult answer. So just let me try and talk you through the auto industry -- the auto industry is global in many ways. So when you buy a U.S. produced car, a Ford or G.M. car, often a lot of the are other parts that go into manufacturing the car, come from places you'd never imagined. And likewise when you buy a Toyota car, some of the parts come from U.S. destinations. So everybody in the auto industry has benefited from this. So we have to remember Germany and the U.K., European countries have done the same thing, and they've benefited U.S. automakers as well. I think the other thing to factor in, if you look at the statistics in terms of the percentage of the take, Toyota comes out on top, at approximately 19.5%, but G.M. is second. There's still a strong locally centered effect.

Ted Simons: There are those that also said this would have an environmental impact. Are you buying that?

Tim James: The environmental question I think is the real sort of red herring in this whole thing. Although we've taken a lot of gas guzzling cars, polluting cars off the road, and we've introduced more efficient cars, they're not as efficient as they really need to be in order to make a significant impact in terms of the effect on the environment. And also, you could question spending -- I think the real benefit is in terms of the economic stimulus. But I think you could question the benefit of spending billions of dollars on a car exchange program, rather than spending it on research, solar or weather proofing homes, getting more benefit in terms of the environmental benefits that way.

Ted Simons: So last question, back to the economic impact. Do stimulus programs like this work in stimulating the economy?

Tim James: Absolutely. This is at -- that this has had a fantastic leverage effect. We've spent $2 or $3 billion on the program, we’ve got $30 billion out of the sales, that’s a fantastic program as far as getting people who are sitting on their cash at the moment to get them to spend their money. Remember, you may be getting a 3½ or $4,000 rebate, but you've got to fund the rest of the purchase out of your own money. So it's got some of the people who weren't buying anything back out in the marketplace.

Ted Simons: Very good. Thanks so much for joining us we appreciate it.

Tim James: Thanks a lot.

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