What Will Happen in the Aftermath of the Clunker Contest?

by: Diane Lim Rogers

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Well, the “Cash for Clunkers” program ended Monday evening. It started as a $1 billion program that was expected to go on for four months (the original rule was from July 1st through Nov. 1st, or when the money ran out). It ended up a program triple the size (after $2 billion in additional funds were added) that managed to run out of funds in less than half the time.

Whether the program was that wise for the environment and resource “conservation” could certainly be questioned (I worried here about the wasteful death of still-useful vehicles turned in as “clunkers”), but the program has been an obvious success as a pure fiscal stimulus program: it brought customers to the dealerships, and they indeed bought the new cars without the usual (especially recessionary) hemming and hawing and mulling the purchases over. Potential buyers knew it was “now or never” to get the $4500 federal rebate before the money ran out, and the contest-like feel to the program really kicked those competing American consumers into action.

Now we’ll watch to see what happens in the aftermath of the program. Will it have served as an effective and sustainable “jump start” to the U.S. auto industry? Or will it have merely concentrated the timing of car purchases into these past few weeks without having boosted demand over the longer run? Will the autoworkers called back to the assembly lines still have their jobs a few months to a year from now?

I never went to the dealer with my minivan, deciding I wanted to try to “recycle” my van at the “proper” time, rather than rush to kill it. (My van would have ended up like part of “Carhenge” pictured above.) As soon as I decided to opt myself out of the Cash for Clunkers pool, I realized I had no incentive to rush out to the dealerships, and that, in fact, I’d better wait until the clunker dust settled before shopping for my new car. Now everyone is out of the Clunkers pool, and instead of it feeling like a contest, it may start to look like a dance where everyone’s back to being wallflowers.