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Helping the auto industry
Swings and roundabouts
Aug 13th 2009 | WASHINGTON, DC
From The Economist print edition
More money for a favoured scheme
“CASH-FOR-CLUNKERS” is a Democrat’s dream: a policy that simultaneously saves rustbelt union jobs and
the environment. It promises Americans up to $4,500 if they trade in a car that gets 18 miles per gallon
(8km per litre) or less for a new one that gets at least 22 miles to the gallon. Helping people buy cars, it
turns out, is popular. Americans snapped up all of the $1 billion Congress set aside for the programme in
its first week. So on August 6th the Democrats cheerfully approved another $2 billion.
But critics argue that the scheme is not so green, pointing to the environmental costs of building new cars
and destroying the clunkers (a requirement under the programme). True, many people are buying
efficient models; the Ford Focus, the Toyota Corolla and the Honda Civic are currently the programme’s
three best-selling cars. But stretched incomes appear to be the reason, as much as government subsidy.
Sales have certainly improved, hitting an eye-popping annualised rate of 19.6m in the last week of July
according to Edmunds.com, a car website, though that presumably came at some cost to spending in
other sectors of the economy—not to mention used-car lots and car-repair garages. There are signs,
however, that the bonanza will be short-lived. Edmunds.com reckons consumers’ intent to buy is already
down 15% from its peak on July 29th, as the pool of qualifying car-buyers becomes exhausted. It projects
that sales will return to pre-cash-for-clunkers levels by the end of August.
The year after France discontinued a similar programme back in the 1990s, car sales plummeted 20%. If
normal demand does not improve before the exceptional sales generated by the scheme come back down
to earth, Detroit could find itself on a shakier footing once again. In that case, expect America’s
carmakers, and their powerful unions, to push for more market-distorting inducements from Washington,
DC.
Copyright © 2009 The Economist Newspaper and The Economist Group. All rights reserved.
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