What Was The Long-Term Impact of Cash for Clunkers

Economic Impact

• The Cash for Clunkers program, officially known as CARS, had only modest and short-lived effects on vehicle sales and economic activity. While it created a temporary surge in new car purchases during its operation in mid-2009, most of these sales were simply pulled forward from future months, resulting in a sharp drop in sales after the program ended

• Studies found that the net increase in vehicle sales attributable to the program was relatively small, with estimates ranging from about 125,000 to 395,000 incremental sales-representing just 1–3% of annual U.S. auto sales at the time

• The program did provide a brief lifeline to struggling auto dealers during the recession, but its effect on overall auto production and GDP was negligible, as it mostly shifted spending from later months to the program period

Used Car Market Effects

• By removing nearly 700,000 older vehicles from the road, the program significantly reduced the supply of used cars, particularly affordable, older models. This led to higher prices for used vehicles, making it harder for low-income and budget-conscious buyers to find affordable transportation

• The reduced supply of used cars also negatively impacted mechanics and salvage yard operators who relied on older vehicles for parts and business

Environmental and Climate Impact

• Although the program replaced many fuel-inefficient vehicles with more efficient ones, the overall environmental benefit was minimal. The cost per ton of CO2 avoided was extremely high, making it an inefficient way to achieve emissions reductions

• Most scientific analyses concluded that the climate benefits were negligible, as the vehicles scrapped were often not driven much, and the environmental cost of manufacturing new vehicles offset some of the gains
Automotive Industry and Fleet Age

• The program did not lead to a sustained boost in the automotive industry or a lasting increase in new vehicle demand

• Contrary to the program’s intent to modernize the vehicle fleet, the average age of U.S. vehicles continued to rise in the years following the program, reaching nearly 13 years by 2024, up from about 10 years in 2009

Conclusion

• The long-term impact of Cash for Clunkers was limited. It provided a brief sales boost and removed some inefficient vehicles, but failed to deliver lasting economic, environmental, or industry benefits. The most enduring effect was a tighter, more expensive used car market, which disproportionately affected lower-income consumers

Sources: National Bureau of Economic Research; Milken Institute Review; Congress.gov; Investopedia