Cash for Clunkers: The gift that keeps on taking

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Catherine Lutz and Anne Lutz Fernandez
Special to AC360°

Toyota’s decision to halt production and recall popular models with a sticky accelerator problem has received tremendous media coverage, although this has almost exclusively been focused on the potential impact of this crisis on the company’s profitability rather than on the safety of its customers.

Other industry stories, like those about Ford’s return to profitability and about the sparkling new, and in some cases greener, vehicles on display at this month’s Detroit and Washington Auto Shows have been taken as signposts of the sector’s coming recovery.

While a recent NBC/Wall Street Journal poll showed that 65 percent of the public is unhappy about the government bailout of the car companies (even higher than the 60 percent who dislike the bank bailouts), there remains a continuing conflation, among policy makers and the public at large, of what’s good for the auto industry and what’s good for American consumers.

Take the popular Cash for Clunkers program. Greg, a hard-working 40-year-old Rhode Island cement factory employee, seems like just the type of guy that it was meant for. And when we met him recently, he saw himself as a lucky beneficiary of the program, one of the rare components of this past year’s stimulus spending that garnered support from Democrats and Republicans alike.

But as many American families head into 2010 in financial situations ranging from tenuous to disastrous, the government has failed to reckon with how transportation costs are contributing to their distress. And this signature Obama Administration program, officially Cash Allowance Rebate System or CARS, has actually made matters worse for some.

When the popular program was announced last summer, Greg was driving a beat-up but reliable 1996 Dodge truck with over 200,000 miles on it. When he brought his old baby by the local dealership, they told him it qualified for a $4500 government rebate because it guzzled a few fewer miles per gallon than the spanking new truck he wanted to trade it in for.

In the midst of a summer of catatonic sales, the dealer stripped another $4500 off sticker and a $30,000 truck suddenly cost $21,000. Despite his bargain, Greg drove off the lot about $20,000 deeper in debt, and, to make his payments, found that he had to go out and get a second job, driving taxis at night.

What Greg did not realize was that this government program, like our transportation policy generally, was little more than an inefficient giveaway to the car companies and a hefty take away from him, something for which he’ll be paying for a long time both as a consumer and as a taxpayer.

Back in October, automotive website Edmunds.com calculated that most of the sales made under Cash for Clunkers would have happened anyway over the coming months. While 700,000 people bought vehicles under the program, only 125,000 of them were additional sales – a very small figure in the context of 2009’s roughly 10 million vehicles sold with a very expensive taxpayer cost of over $24,000 for each purchase the program caused.

Environmentally, Cash for Clunkers will have some of its desired positive effect, reducing carbon emissions by raising the average fuel efficiency of the US automotive fleet a bit. Yet according to a recent University of California study, any number of other government or business initiatives could have had a similar impact at a fraction of the price.

And government failure to protect taxpayers and car buyers from abuse and fraud in the program has been reported by consumer advocacy groups like Consumers for Auto Reliability and Safety. Some dealers have “double-dipped,” for example, getting the government rebate but still charging buyers the price they would have otherwise charged.

But the cost of delivering additional car and truck sales to Detroit (and Tokyo and Seoul) cannot be calculated just in terms of the tax dollars spent, however inefficiently or even fraudulently. We also need to look at the financial burdens, often weighty, that Greg and others like him took on by participating in the program. Of course, the burden of modern car ownership falls not only on the 700,000 who bought a car under CARS. It also falls on the 10 million other buyers this year, who because they own a brand new car, are likely paying more than even the surprising $14,000 per year it costs the average American family to own and drive its typical two vehicles.

Car costs are their second largest household expense—not far behind housing. As families have absorbed the shocks of job loss, retirement fund implosions, and credit crunches, transportation costs are an under-examined but monumental part of the load they carry.

Many Americans have, after decades of car and oil industry influence in government, become convinced that their personal financial well-being and the health of the auto industry are inextricably linked. But the opposite is often true, as Greg’s story illustrates. A transportation policy that is oriented more toward car company profitability than the mobility, financial, and environmental needs of American families is a desperately flawed one.

To survive this recession and thrive beyond it, our country needs a very different mix of stimulus spending and transit policies: ones favoring trains, buses, and bikes at least as much as pickups, crossovers, and coupes.

Editor's Note: Catherine Lutz, a Brown University anthropologist, and Anne Lutz Fernandez, a former marketer and banker, are the authors of Carjacked: The Culture of the Automobile and its Effect on our Lives (Palgrave Macmillan).