Cash for Clunkers Saves America

The government’s CARS program, now and forever popularly known as “cash for clunkers,” has had a wild ride since its debut just shy of two weeks ago. Part of that has been a drumbeat of criticism: Cash for clunkers isn’t really good for the consumer; cash for clunkers isn’t good for the environment; cash for clunkers isn’t good for the taxpayer. The C4C critics may all have a point, but a simple fact remains: Cash for clunkers has greatly increased new cars sales. And that was the point. Edmunds.com, a large consumer site that also does industry analysis, calculates that the C4C sale rate, if extrapolated to an entire year, would yield a market of more than 19 million new cars. For perspective, the best year on record for the industry was 2000, with 17.4 million new sales. Optimistic predictions for a recovered auto industry put this number only at 12 million to 14 million.

So, it's a fairly massive, if temporary, jump in the numbers. Automakers and dealers are understandably overjoyed, given that the market has been moribund since January. Assuming that Congress authorizes another $2 billion to keep C4C going, this could represent the moment when pent-up consumer demand and government stimulus decisively intersected, bringing the skittish U.S. consumer off the sidelines and back into the game. Is this the how the recession really ends—not with Goldman Sachs reporting huge profits, but with the automakers finally selling, and the public finally buying?