Somehow I missed last week's minor tempest concerning this summer's Cash for Clunkers program (CFC.) It apparently started when auto industry publisher Edmunds, Inc. issued a report indicating that the effective cost to the government of the incremental sales stimulated by the program averaged roughly $24,000, rather than the $4,000 or so per car that participating buyers actually received. That's based on Edmunds' estimate of the sales they conclude would have occurred in the absence of CFC, shrinking its net contribution from 690,000 vehicles to only 125,000. This prompted a snarky response from the White House, questioning not only Edmunds' analysis but also their motives and basic competence, leading to a polite-but-firm rejoinder from Edmunds. Having expressed support for the CFC concept and its reported results in previous postings, I can't resist adding my own two cents on this affair.
Let's start with a basic fact: No matter how rigorously Edmunds or the federal government analyzes car sales data for this year, the number of cars that would have been sold during the months in question without the clunkers program is inherently unknowable, just as it is inherently unknowable how many jobs have been "saved" to date by the total stimulus program, of which CFC was only one small, belated aspect. This dispute hinges on differences of opinion and underlying assumptions, and the statistical projections of both sides must be taken with a grain of salt. However, any notion that it is somehow out of bounds to look back on the outcomes of such a program to assess its effectiveness should be rejected forcefully. Project look-backs, or post-completion reviews, are among the best tools that corporations have to learn from mistakes and improve future performance. These techniques are no less appropriate in the public sphere, particularly when the government is undertaking so many initiatives that would ordinarily be left to the private sector.
It's important to frame any look-back analysis with a clear understanding of what the project in question was intended to achieve. In this case, CFC was meant to boost car sales and consumer confidence at a time when both were at extraordinarily low levels. It was also aimed at improving the fuel economy of the US car fleet by retiring some of the least-efficient vehicles on the road. Judging it on the cost-effectiveness of the incremental sales it generated reflects a subtle but significant distinction in interpreting those goals, though as a taxpayer I'm certainly interested in knowing how CFC measured up against that criterion. Still, on the basic question of increasing sales, even the data presented by Edmunds are unambiguous.
Looking at the monthly car sales figures included in Edmunds' report, it is clear that US new-car sales jumped from a depressed annual rate of around 10 million units pre-Clunkers--a level too low to sustain the North American car manufacturing capacity now in place--to over 14 million, approaching the typical pre-recession sales for the industry. After the program ended, sales fell back to around the 10 million mark. Although CFC hardly restored the industry to good health, it provided the expected temporary boost in sales at a time when the recent bankruptcy filings of GM and Chrysler had raised new uncertainties for consumers. The fuel economy uplift on the average transaction was also significant, though as I mentioned at the time this amounted to a very small change in the overall fuel economy of a vehicle fleet numbering around 240 million cars and light trucks. So while CFC in retrospect looks to have been a very expensive way to help the industry sell more cars, its performance against the metrics most relevant to its conception stacks up pretty much as advertised.
The larger question raised by the Edmunds analysis concerns the degree to which the government can compensate for weak economic conditions in the private sector, and how expensive the incremental contribution of such efforts can prove, compared to the natural recuperative powers of the economy. Their assessment might also have implications for how we should evaluate the ongoing incentives for advanced technology vehicles. In that light, I have to wonder how much of the heat generated by this episode is instinctive bridling at perceived Monday morning quarterbacking, and how much relates to its potential to undermine the case for a second stimulus that is building in some quarters.