Cash for Clunkers is still a bad idea for the industry

May 27, 2020
To date, at least two vehicle manufacturers have called for Congress to bring back Clash for Clunkers as a response to lagging vehicle sales due to the COVID-19 pandemic.

The automotive aftermarket has struggled for a number of years with government-sponsored vehicle retirement programs commonly known as Cash for Clunkers programs. These programs offer cash to consumers to trade in their old vehicles for more fuel-efficient ones. A few states have long-established programs or pilot programs including California, Colorado, Delaware, Illinois, Texas and Virginia. Countries such as Canada and Germany have also had programs.  The aftermarket has opposed these state programs with limited success. The state programs pale in comparison to what was established by the federal government during the 2008 recession; a program that provided up to $4,500 per vehicle destroyed. In President Obama’s words on July 31, 2009, “the CARS (Consumer Assistance to Recycle and Save) program was an effort to boost the economy and sell more fuel-efficient vehicles.  U.S. Secretary of Transportation Ray LaHood stated in the summer of 2009 that the CARS program was a “win-win for our economy and our environment.”  

The CARS program was signed into law on June 24, 2009, and the National Highway Traffic Safety Administration (NHTSA) established an eligibility period of July 1, 2009 through November 1, 2009. Auto dealers began submitting applications for new car deals as early as July 27 of that year.  The program proved popular enough that Congress appropriated an additional $2 billion for the program in August of 2009. This $3 billion program took approximately 700,000 post-warranty vehicles out of independent repair shop bays and destroyed them. The removal of these vehicles from the marketplace harmed not only independent repair shops, but also distributors and aftermarket manufacturers. In many cases, the program harmed some consumers who took the money but were pressed to be able to purchase a new, expensive, environmentally friendly vehicle.

Who were the winners? New car dealers and vehicle manufacturers. According to the Brookings Institution research study, Cash for Clunkers: An Evaluation of the Car Allowance Rebate System, some vehicle manufacturers saw large stock spikes during the Clunker program with significant decreases in stock value once the program ended.

The Automotive Service Association (ASA) heard from independent repairers across the U.S. that they were seeing losses in their customer base during the program. Although participation in the program was widespread, U.S. population centers saw the greatest degree of Clunker applications, and shops in these areas were hit the hardest.

To date, at least two vehicle manufacturers have called for Congress to bring back Cash for Clunkers as a response to lagging vehicle sales due to the COVID-19 pandemic.  Although Clunker would clearly benefit vehicle manufacturers and new car dealers, what about aftermarket stakeholders?  The Government Accountability Office (GAO) has noted the importance of including other stakeholders prior to any re-establishment of a Clunker program:

Given the number of stakeholders that are financially affected by the auto industry, it would be important to collect and consider information on how a future program would affect these stakeholders and take mitigating actions, as appropriate. 

Unfortunately, even in its own review of the 2009 Clunker program, GAO did not include the aftermarket as part of its analysis.  The aftermarket opposed the program during congressional debate and, in a desperate attempt to balance interests, offered a “repair option” for consumers. This option was rejected by the Obama Administration and congressional leaders.   

Recently the automotive aftermarket, Auto Care Association, Automotive Oil Change Association, ASA, Service Station Dealers of America and Allied Trades, and the Tire Industry Association joined in a letter to Capitol Hill opposing Cash for Clunkers as part of the COVID-19 stimulus response. We urge you to support America’s small businesses and OPPOSE any new Cash for Clunkers vehicle retirement program in the next COVID-19 stimulus package. COVID-19 has had a devastating effect on small businesses. As an important sector of the U.S. economy, we cannot survive any further negative effects.

Both the U.S. House of Representatives and Senate are now considering a fourth COVID-19 stimulus package. It is critical that Congress consider the impact of a Cash for Clunkers-type program on all automotive industry stakeholders and not just one segment of the industry.

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