The Supply and Demand for Cash for Clunkers

Saturday, September 04, 2010 Posted by RuninDC

So you want to buy a car?  New or used?  It does make a difference, and the Cash for Clunkers program that seemed like a great idea at first may not be so hot after all.

Well, for starters, Cash for Clunkers seemed like a great idea at first.  But it has to do with supply and demand. 

A lot of people, 700,000 really, traded in their old cars for a nice government rebate.   So a lot of cars were being sold and inventories came down, bringing up prices.

But that was the last time auto dealers had a boon in sales.  People were just buying their vehicles earlier, moving up their purchases from the fall and even spring and summer of 2010. 

According to economists Amir Sufi of the University of Chicago and Atif Mian of University of California-Berkeley:
The government’s “cash for clunkers” program boosted auto sales by 360,000 during the two months it was in place, according to a new study. But in the seven months that followed, sales were down by 360,000 compared to what they would have been without the program, the study found.
The one good thing this program did was that it saved thousands of dealerships unprepared for the economic downtown from going under.  They were able to clear their huge backlog of cars sitting on their lots.

A year later, the price of used cars have gone up about 10% because now the inventory of used cars have gone down.  The government destroyed the clunkers, many of them (680,000) could have been recycled as used cars.

Also, with consumer confidence low, Americans are forgoing buying new cars, so the demand for used cars have gone up.

So was this good for consumers and the economy?  Or was it just good for the environment?
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