Politicians aren’t ones to let reality cloud their view. We said back in the spring, when the cash for clunkers program was proposed, that it would stimulate stimulate sales of the transplant automakers, not provide core support for the domestic big three, and that is exactly what has happened. Politicians are lauding the rapid uptake of the initial $1bn as an example of how successful the program has been and justification for allocation of a further $2bn. But figures released show that although a rise in fuel efficiency has resulted in the new vehicles averaging 25.4 miles per gallon, compared with an average of 15.8 mpg for the trade-ins, most of the sales have gone to Asian producers. Although the top-selling new car is the Ford Focus (sedans are made in the US but hatchbacks are made in Mexico), the next four are all Japanese – the Toyota Corolla, Honda Civic, Toyota Prius and Toyota Camry according to the Washington Post.
This is exactly the same as the experience in Germany where their version of the scheme known locally as the AbwrackprÃƒÆ’ ¤mie, or “wreck rebate,” is said to have sucked in imports of foreign made cars such as Skoda’s, Hyundai’s and Renaults. The other experience is that as soon as the rebate ends so do the sales. Rather than providing a lasting stimulus, factories gear up for higher production only to see them fall back if subsidies do not continue. Other consumer goods suppliers complain that such car stimulus packages merely divert what meager spending may have gone into a new washing machine or item of furniture towards a car further depressing consumer sales.
Still, on balance it is probably a more effective way of supporting the whole automotive industry than direct subsidies, but it has to be considered a medium term program. As a short fix, it almost does more harm than good.