Cash For Clunkers: The Data On Why It's Working

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2009 Ford Focus S

2009 Ford Focus S

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Who knew? Turns out Americans just needed a little nudge to visit their car dealers, but the promise of an extra $3,500 or more in incentives was enough to push car buyers over the hump and get them to trade in their clunkers.

And how. As we reported Friday on our sister site, the Car Allowance Rebate Systems (CARS) program, usually called "Cash for Clunkers," has been so successful that it may have run through its allocated $1 billion in funds in just one week.

That led the US House of Representatives to vote to transfer $2 billion to the CARS program from an energy-loan guarantee fund. Yesterday, Republican Senators announced that they would oppose any extension of the program.

Nonetheless, Senators Dianne Feinstein (D-CA) and Susan Collins (R-ME) said they expect the Senate will ultimately vote to allocate the money. They had opposed an extension because they felt the current program did not require high enough mileage increases.

A Senate vote could occur tomorrow or Thursday.

But is it working?

Yet in some respects, partisan posturing seems to have overshadowed basic data analysis. Now the early reports are in from last week's sales. So let's consider the basic question: Is the program doing what it was supposed to do?

As enacted, the Clunkers program was something akin to the definition of a camel: a horse designed by committee. It had two goals that weren't always aligned: It had to increase the average gas mileage of cars on the road, but also encourage new car sales, period.

First, do the vehicles that have been sold get better mileage than the ones traded in? Yes, they do. But they were always going to raise average mileage; the interesting data comes in how much better the fuel economy actually is.

The National Highway Traffic Safety Administration said that as of yesterday at 4 pm, almost 134,000 vehicles had been traded in, earning rebates of $564 million.

That's an average rebate of more than $4,200--meaning that the mileage increases were far higher than the minimum necessary to earn the base rebate of $3,500.

1999 Ford Explorer Sport

1999 Ford Explorer Sport

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In fact, the US Transportation Department data showed a mileage gain of nearly 10 miles per gallon overall on the vehicles purchased as compared to the ones traded in, from 15.8 mpg for the trade-ins to 25.4 mpg for the new vehicles. That is far higher than the minimum requirement of a 4-mpg increase for cars and a mere 2 mpg for light trucks.

From trucks to cars

Moreover, the program is significantly shifting the new vehicle mix from light trucks to cars. While 83 percent of the vehicles traded in were sport-utility vehicles and pickup trucks, six out of 10 of the new vehicles purchased were cars.

UPDATE, Aug 5: Revised data from the Department of Transportation indicates that the five most traded-in models under the clunker program are: Ford Explorer (4WD), Ford F-150 (2WD), Jeep Grand Cherokee (4WD), Jeep Cherokee (4WD), and Dodge Caravan/Grand Caravan (2WD).

Following the top-five list are:  Chevrolet Blazer (4WD), Ford Explorer (2WD), Ford F-150 (4WD), Chevrolet C-1500 (2WD), and finally Ford Windstar (4WD) bringing up the rear. Of these 10, five are sport utilities, three are pickup trucks, and two are minivans.

In fact, the Ford Explorer--that quintessential sport-utility of the 1990s--occupied no fewer than six of the top 10 trade-in slots. Explorers from model years 1994, 1995, 1996, 1997, 1998, and 1999 were in the top 10, with EPA mileage ratings of 14 to 18 miles per gallon depending on drivetrain.

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