Cash for Clunkers scheme ends, but has it been a success?

Obama's popular Cash for Clunkers scheme has ended, giving the American auto-mobile industry a much needed boost, but has it been the success the administration has hoped for or merely given the car-makers a short reprieve?

Since the Cash for Clunkers bill was launched in late July, the administration has injected over $3 billion in cash incentives into the project generating almost 700,000 new car sales with a total revenue of $2.88 billion.

Within the first week, the scheme saw massive sales with the original $1 billion budget almost running out within a week, prompting the government to add another $2 billion to 'the pot'. The program offered consumers rebates of $3,500 or $4,500 off the price of a new vehicle in return for trading in their older, less fuel-efficient vehicles to be scrapped. The trade-in vehicles needed to get 18 miles per gallon or less.

Despite the large number of car sales, American car makers suffered a hit as the popular car traded-in was the US-made Ford Explorer, followed by the Ford F-150 Pickup two-wheel-drive, the Jeep Grand Cherokee four-wheel-drive and Ford Explorer two-wheel-drive.

In comparison, Japanese car-makers saw a massive boost as the most popular new vehicle purchased under the program was the Toyota Corolla, followed by the Honda Civic and Toyota Camry.

Japanese automakers Toyota, Honda and Nissan accounted for 41 percent of the new vehicle sales, outpaced their American rivals such as General Motors, Ford and Chrysler who took a share of nearly 39 percent.

Despite this, the Obama administration has declared the program a major success, saying Cash for Clunkers provided a needed stimulus to the auto industry and the broader economy, which hadn't seen such a plunge in sales since the early 1980s.

Industry experts are now saying that after the 'party' of the Cash for Clunkers scheme, the auto industry will now experience a 'hangover', with a large drop in sales due to the lack of incentives.

Jeremy Anwyl, CEO of the auto Web site Edmunds.com, said dealers and auto-makers clearly gained from the big boost in sales, but it was the incentives that helped consumers rush out to take advantage of the rebates.

Inventory shortages from the popular program could keep prices high and drive down new vehicle sales. "We have created a sales bubble and now that bubble has burst," Anwyl said.

Some car dealers, despite enjoyed the boost in sales, have also reported major hassles trying to get the government to repay them for the rebates, with many dealers still waiting to get paid.

Despite all this though, the Transportation Department has expressed confidence that administrative costs will bring the scheme's total expenditure under the $3 billion budget. No matter which way one cuts it, critics can't deny that the scheme has been a much needed shot in the arm for auto-retailers and the entire project has come in under budget... and that's a rare thing.

Like this article? Get the RSS feed: