Cash for Clunkers is like anabolic steroids.

Users look for long term gains. But in the end, they only get a short-term boost. In reality, the long-term effects are messy and leave you weaker than before.

The United States government had two goals with Cash for Clunkers. Goal one: get greener cars on the road. Goal two: boost the auto industry, and by extension, the U.S. economy.

Let’s examine the latter goal first.

According to the U.S. Department of Transportation, 690,114 applications were filed for the Cash for Clunkers program. That’s 690,114 new vehicles sold in just over a month; definitely a quick boost to the economy and auto industry.

But the short term gain will have devastating effects for future sales.

Cars are postponable purchases. Cash for Clunkers caused consumers, who would have been willing to hold on to their vehicles for another six months, year or even two years, to enter the car market now.

Thus, car sales rose dramatically during the summer. But over the next couple of fiscal quarters, or even years, new car sales will be at lower rates.

“What you’ve really done is moved some purchases further in time,” said Stephen Karlson, NIU Associate Professor of Economics, who was in Detroit during the 1982 recession. “You replace it now, but now these people have new cars that they can keep running into the future. So short-term, it does clear inventory out. But long-term you have to be careful about expecting any long-term positive effect for the car companies.”

It’s like a roller coaster. The government was a chain pull, bringing the auto companies up to the highest point. Now, without Cash for Clunkers, the auto companies better hold on tight for the ride.

But this could all be forgiven for more important and long-term environmental goals.

Too bad the government also failed here.

It’s true that on paper there appears to be improvement. The average mileage of a vehicle traded-in from the program was 15.8, while the average mileage of a vehicle bought was 24.9. Thus, a net gain of 9.1. miles per gallon.

But, as Karlson put it, “This is naive view.”

To assume there will be fuel usage reduction you must assume the drivers of these new vehicles will maintain the habits they had with their clunkers.

“If you have a car that’s cheaper to operate maybe you’re less careful about multi-tripping,” Dr. Karlson said. “So you’re burning less gas on any one trip, but you’re doing more trips. And people can now risk the road trip because they have a car that’s less likely to break down.”
Then there’s also the factor of what’s left on the road.

Cars are a commodity that moves down the economic ladder; hence why there is a used car market.

With Cash for Clunkers, a large number of serviceable vehicles have been eliminated from the used car market, as the government forced all clunkers to have their engine destroyed. The demand for used cars, however, has not changed. Thus, this will cause a price increase in the used car market.

This in turn will cause the working poor, single parents and students to hold on to their vehicles for a longer time until the used car market stabilizes. This means cars with failing emissions, safety issues and more will stay on the road for a longer time.

“Some of those older things are going to hang around longer,” Karlson said. “You might have to start thinking, ‘Does it really make sense to scrap out usable existing cars, when that might have the effect of keeping other clunkier cars, where people don’t have the resources to trade them in, on the road longer?’”

Then factor in older cars on the road, people not being as conscious with their driving habits and the pure cost of energy it takes to transport and destroy these clunkers, Karlson believes it’s possible that there will be no energy savings from the program.

There goes the government’s first goal.

So what did Cash for Clunkers do?

It provided a short-term $3 billion stimulus for car companies, as the middle and upper class replaced their Ford Explorers (the number one traded in vehicle) with Toyota Corollas (the number one bought vehicle).

On the other hand, it prevented the working poor, single parents and students - who didn’t have access to the needed cash and credit to participate - from getting new cars. Thus, this group of citizens, the group the Democrats say they represent, are left with the option of buying more expensive used cars or holding on to their cars during as they fall apart.

Don’t you just love it when the government says, “Mission accomplished?”

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