IOUs for Clunkers … Good For The Economy?

According to the government, Cash for Clunkers was wildly successful.  C4C was intended to stimulate auto sales and reduce gas consumption.  As measured by the 700,000 vehicles sold, it appears to have done that.  But a peak under the hood reveals that government intervention is less efficient than private sector solutions.

The C4C program did accomplish good things.  Car dealers sold slow moving inventory benefitting manufacturers, dealers, and their employees.  Car buyers increased fuel efficiency 60%.

Taxpayers, you and I, gave $3 billion to our neighbors to stimulate their purchases.  So, what did we get for our money?  Reduced oil imports?  C4C will reduce gas consumption by just 12,000 barrels a day, a mere drop in the barrel compared to the 9 million barrels we use every day.  Reduced “Carbon Footprint”?  Not so fast.  Carbon benefits are only worth $2,443 after driving the car for 10 years, just half of the $4,500 rebate.

What about benefits to the dealers?  Private businesses reacted efficiently by gearing up so quickly that the original $1 billion budgeted for the program was used in the first week.  They sold so many cars so quickly that C4C ended on August 24^th, three months earlier than expected.  Dealers had to complete their paperwork within 24 hours.  Now more than $2.6 billion in rebates is owed to dealers with less than 10% paid out.  Dealers complain of red tape, delays, and bureaucracy.

Then there are the unintended consequences.  The supply of used cars will shrink while the demand will stay the same or increase. Prices will consequently increase, affecting teens, low income Americans and buyers of ‘winter beaters’.

Twin Cities North Chamber of Commerce member Cliff Korkowski, Executive Director of Free2Be in Blaine, accepts vehicle donations.  Volunteers repair and give the cars, free of charge, to single mothers needing a vehicle to get their kids to the doctor and themselves to work.  Korkowski says, “The destruction of these cars means someone in the north metro won’t be able to get to work or pick their kids up from school.”

When the government picks winners, there are always unintended losers that will negatively impact the economy.  By allowing the competitive free market to determine what, how, and for whom to produce, and at what price, the economy will revive in the most efficient manner.

The Twin Cities North Chamber of Commerce is dedicated to the growth of private business.  With over 400 member businesses in the surrounding area, we advocate for economic development and the opportunity to create jobs that pay great wages and offer competitive benefits to area residents.

By Tim Roche, President and CEO of the Twin Cities North Chamber of Commerce and Bill Gschwind, InPURSUIT Consulting