Drudge linked to that piece as a study, but it’s actually quoting facts from this article at E Magazine. So we’ve got some facts, but calling it a study is a stretch.
That said, the article raises some of the same questions that people wondered about at the time. Isn’t destroying a functional car bad for the environment? And won’t this reduce the supply of used cars and hurt poor people?
Shredding vehicles results in its own environmental nightmare. For each ton of metal produced by a shredding facility, roughly 500 pounds of “shredding residue” is also produced, which includes polyurethane foams, metal oxides, glass and dirt. All totaled, about 4.5 million tons of that residue is already produced on average every year. Where does it go? Right into a landfill.
E Magazine states recycling just the plastic and metal alone from the CARS scraps would have saved 24 million barrels of oil. While some of the “Clunkers” were truly old, many of the almost 700,000 cars were still in perfectly good condition. In fact, many that qualified for the program were relatively “young,” with fuel efficiencies that rivaled newer cars.
But all that vehicular destruction did more than create unnecessary waste for the environment. It also had some far-reaching economic effects.
According to a recent TriCities op-ed from Mike Smith of Ralph Smith Motors in Virginia, CARS created a dearth of used cars, artificially driving up prices. For those who needed an affordable car, but didn’t qualify for the program, this increase in price meant affordable transportation was well out of reach. It also meant used-car dealers, most of whom are independently owned, small-business owners, had little to no stock. According to Smith, 122 Virginia dealers chose not to renew their licenses after that year.
Another question is whether Cash for Clunkers created net additional demand for cars, or if it just pulled demand forward. Sure, lots of people bought cars during the program, but fewer people were buying cars when the program was over. So did car sales increase overall, or did sales just shift in time?
(We use to resell a product line that was famous for a while for having Crazy Eddie pricing at the end of every quarter to boost their sales numbers. At quarter end customers would buy and we’d buy extra inventory. But then the new quarter would start. Many customers and dealers already had what they needed, so the company’s sales numbers would look bad. At the end of the quarter they’d have fire sale prices again to make sales look good. This went on for a couple of years. Eventually they realized that they were cutting their own throats and quit with the Crazy Eddie routine.)