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Sunday, March 14, 2010

Accelerated Vehicle Retirement for Fuel Economy: “Cash for Clunkers”

Brent D. Yacobucci
Specialist in Energy and Environmental Policy

Bill Canis
Specialist in Industrial Organization and Business

In an attempt to boost sagging U.S. auto sales and to promote higher vehicle fuel economy, the President signed legislation on June 24, 2009, P.L. 111-32, establishing a program to provide rebates to prospective purchasers toward the purchase of new, fuel-efficient vehicles, provided the trade-in vehicles are scrapped. The program was known as Consumer Assistance to Recycle and Save (CARS), or, informally, as "cash for clunkers." It provided rebates of $3,500 or $4,500, depending on fuel economy and vehicle type of both the new vehicle and the vehicle to be disposed of. Congress appropriated $3 billion for the program in two separate installments. CARS ran for a month, from July 24, 2009, until August 25, 2009. 

During this period, nearly 700,000 vehicles were traded. Estimates of new vehicle sales induced by the rebate system range from 125,000 to as many as 440,000. Motor vehicle sales in August 2009 hit 14 million seasonally adjusted units, compared to only 9.5 million being sold on a seasonally adjusted basis in the first six months of 2009. These CARS-assisted summer sales helped propel overall 2009 car sales to 10.4 million units, comparable to annual sales for 2008. 

After officially launching on June 24, 2009, when NHTSA regulations were issued, the CARS program was embraced by thousands of consumers and by auto dealers across the country, who advertised it widely. By the end of the first week, the U.S. Department of Transportation (DOT) announced that nearly all of the initial $1 billion in funds appropriated for it were committed, based on rising dealer applications for rebate reimbursements and surveying of dealer backlogs. 

Recognizing the stimulative effect of the program, the House of Representatives voted to appropriate an additional $2 billion (H.R. 3435) on July 31, 2009, tapping funds from the economic recovery act (American Recovery and Reinvestment Act, or ARRA, P.L. 111-5). The Senate followed suit on August 6, 2009, and President Obama signed the supplemental CARS funding into law (P.L. 111-47) on August 7, 2009. 

By most measures, CARS was successful in stimulating auto sales. Among the benchmarks listed by NHTSA, which oversaw CARS: 

• August 2009 sales were 43% higher than in June 2009, the last pre-CARS month; 

• The total value of all CARS transactions was $15.2 billion; 

• About 60,000 jobs were estimated to have been created in auto parts, assembly, and sales, and an estimated $7.8 billion added to U.S. Gross Domestic Product. 

Similar programs have been implemented in various U.S. states, but this was the first federal program. In general those state pilot programs focused on retiring vehicles with older, and in some cases malfunctioning, emissions control systems in order to promote better air quality. CARS focused, instead, on higher fuel economy and promoting U.S. auto sales. Similar vehicle retirement programs have been implemented in other countries, such as Japan, Germany, France, and China, and provided a similar boost in auto sales. 

This report outlines the key provisions of the CARS program and discusses the impact of the program on the economy. It also summarizes similar programs in other industrial countries.

Date of Report: March 3, 2010
Number of Pages: 17
Order Number: R40654
Price: $29.95

Document available electronically as a pdf file or in paper form.
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