As the CARS program -- aka "cash for clunkers" finishes up today, it marks the end of a very short, yet exceedingly contentious government stimulus program. As the most visible of the government's economic growth moves, it has spent roughly $3 billion, inspired the purchase of hundreds of thousands of cars, and has offered a shot in the arm to an industry that many considered moribund. In the process, it has also provided some vital lessons for policymaker preparing future programs.
DailyFinance's Peter Cohan attributes much of CARS' success to "nudgenomics," or the act of creating policies that "nudge" consumers to spend their money in the most productive way. In this case, he argues, the program wedded environmental improvement, economic stimulus, and customers' self-interest in a way that drove people to pour money back into the economy.
Of course, there's always the question of where the nudge is aimed. While there has been much debate over the environmental benefit of the CARS program, there is little doubt that it provided a major economic stimulus to the country. One of the biggest winners, Ford (F), sold approximately 16.5 percent of the CARS vehicles, and its retail sales in July jumped by nine percent over 2008. GM, which sold 18.9 percent of the cars purchased in July, didn't quite have the year-to-year jump of Ford, but nonetheless had a nice increase. Even Chrysler, which dropped nine percent between July 2008 and July 2009, had major increases in many models.
Many critics have noted that the plan also provided a significant stimulus to foreign car manufacturers. This is a fair critique: with 19.2 percent market share over the life of the program, Toyota reaped larger benefits than any Detroit automaker. However, even this significant benefit for Toyota still may translate into a major stimulus for American auto workers. According to Cars.com's annual "American-Made" index, of the ten cars that are most constructed in America, four are made by Toyota and a fifth is made by Honda. Incidentally, of the remaining five, two are made by Ford and three are made by GM. None are made by Chrysler.
Beyond the "made in America" arguments, however, the"cash for clunkers" program has brought a larger issue to light. For much of the past decade, at least since 2001, Americans have seemed eager to find a way to help their country through its diplomatic and, later, economic malaise.
The issue is not a matter of will, but rather a problem with direction. One of the lessons of the past eight years is that Americans want to be told how and where to help. When presented with numbers like a $700 billion bailout or trillions of dollars of national debt, many consumers are inspired to act, but are unsure of the best course of action. Even apparently obvious directives like "buy American" become problematic when many American companies use foreign factories and many foreign companies use American factories.
When the last President told Americans to spend money, they did so in droves, fueling massive consumer sales and (arguably) delaying a recession. When this President used paper-thin environmental justifications to encourage consumers to buy cars, they once again did their part, turning "cash for clunkers" into an unmitigated success for car manufacturers, distributors, and salesmen. What's more, they did so with only minimal political grumbling.
On the cynical side, one could argue that Americans are far too inclined to vote with their wallets. However, a brighter -- and perhaps more relevant -- perspective would be consumers want to do their part for their country, and are only waiting for their government to point the way.
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