Cash for Clunkers: Cooked Books for Domestic Manufacturers?


It won’t come as any surprise to readers that I’m not exactly a fan of Cash for Clunkers.  All this $3,000,000,000 Chinese borrowing program did was push forward some demand.  If car dealers are going to permanently reduce their months of inventory, that’s all to the good, but it’s hard to see how C4C did anything other than hasten the process a little.  (If they’re not, then it did even less good.)  The environmental effects are minuscule, given the size of the US auto fleet and the small per-unit increase in mileage.  And many dealers ended up pulling out of the program because the interest-free loans they were floating to the feds (with the notable exception of government-owned GM), were putting them in a cash crunch.  As reimbursement trickles in, they’ll see sales drop back to lower-then-previous levels, and there’s no particular reason to think the dealers will be better off for having moved revenue from one quarter to another.  In the meantime, it’s taken a large chunk of older cars and their replacement parts off the market, hurting most those who need cheap local transportation, the working poor.

However, there’s one complaint that isn’t particularly valid: that most of the cars bought were Japanese models, and that this hurts the domestic manufacturers.  According to the final numbers, the Big 3 ended up with about 38% of the cars sold.  But of the biggest foreign sellers, many are either made or assembled here in the US.  The Toyota Corolla had a US-made engine and was assembled in the company’s Fremont, Calif. plant.  At least, until they decided to shutter the place late last week.   Honda Civic sedans also have US engines and are assembled in Indiana.  The Camry has both US transmissions and engines, and is assembled locally (not so the hybrid, which is only assembled here).  The Accord has both local engines and transmissions, and is assembled in Ohio.  Presumably parts for all of those models are also produced domestically.

The Fit, Elantra, Versa, and Prius, seem to be produced exclusively overseas, but those are also down the list.

So while union shops may have a lot to complain about (especially since the doomed Fremont plant is the only union shop among the foreign-owned group), it’s not clear that US shops have really suffered here.  If conservatives are going to promote free trade on the grounds that non-union foreign plants also employ people, we need to be honest enough to recognize when they benefit from ill-conceived government programs, too.

Still, the political power of pitting domestic vs. foreign cars is undeniable, which makes these numbers interesting.  As of August 4, according to the LA Times and “numbers floating around Capitol Hill,” almost half the 157,000 cars sold had been from the Big 3.  Two weeks and $2,000,000,000 later, an additional 533,000 cars had been sold, 2/3 of which were from foreign producers.  It’s unclear what the source of the original numbers was – the LA Times doesn’t give one – but I’m extremely skeptical that first-week buyers were so radically different from 2nd- and 3rd-week buyers.  And it wouldn’t surprise me at all to hear that some “creative estimating” was done in order to boost the apparent benefit of the program to domestic manufacturers.

Comments are closed.