by Brian Tully

Analysis of the Cash for Clunkers program after its 27-day run is happening all across the country. Many are calling it a success, and certainly the official line from Washington is overwhelmingly positive. However, determining success and failure assumes that analysts are using the same definition of success and the same set of statistics.

Let’s take a look:

1. Stated goal of replacing old gas hogs with shiny new cars: Pass.

There is obviously subjectivity around what is efficient and what is not, and it is equally obvious that the Environmental Protection Agency (EPA) dickered around with the numbers right up to the launch of this program. The average reported gas economy of new vehicles sold under the program was 24.9 miles per gallon (mpg), while the average gas economy of vehicles traded in was 15.8 mpg. This resulted in an overall increase of 9.2 mpg, or a 58 percent improvement over the roughly 700,000 vehicles sold. Usually increasing mpg in a fleet (all consumer vehicles) takes an entire generation. This could help speed up that pace.

2. Selling new cars: Pass.

A lot of cars got moved off lots – nearly 700,000 in 27 days. Texas led all states with claims of $187 million, beating the number two state, New York, by about $30 million. People who would not have otherwise been in the market went to car lots and bought new cars. That is undeniable. Many people went from trucks to cars, as 84 percent of trade-ins under the program were trucks, and 59 percent of new vehicles purchased were cars. And yet, there were some qualifying trucks, and trucks did move off lots, albeit at a slower rate than cars. There were so many sales of qualifying vehicles that deals were not confined to those units in inventory but also expanded to new orders.

The Department of Transportation (DOT) reported the top 10 vehicle models sold under the program as follows:

1. Toyota Corolla
2. Ford Focus
3. Honda Civic
4. Toyota Prius
5. Toyota Camry
6. Hyundai Elantra
7. Ford Escape (four-wheel drive)
8. Dodge Caliber
9. Honda Fit
10. Chevrolet Cobalt

Many other sources are reporting the same thing, but there is some question about how the figures were calculated. It seems that sales were tallied not by vehicle model but by differences in mileage across submodels. Edmunds reported that the DOT was not summing all versions of the Escape, for instance (which had three eligible submodels in the program – four-wheel drive, all-wheel drive and hybrid), and somehow tallied the sales numbers itself – by model – early on in the program. When the DOT summed all submodels and counted them as one car, the numbers for the most popular cars change.

3. Helping our now-nationalized auto companies move product: Questionable.

If you are going to nationalize two car companies and federally subsidize buying cars, you would think it a no-brainer to make the subsidy for your (our) own products. The CEO of a company that subsidized the purchase of other company products with his company’s revenue would probably be fired. But the government is not in “business,” it is in “government.” According to the DOT numbers, the program was a failure at selling our own goods. But a look at the numbers reported by Edmunds, based on total model – not submodel – sales, paints a different picture:

1. Ford Escape
2. Ford Focus
3. Jeep Patriot
4. Dodge Caliber
5. Ford F-150
6. Honda Civic
7. Chevrolet Silverado
8. Chevrolet Cobalt
9. Toyota Corolla
10. Ford Fusion

The reason for this is that Corolla, for instance, only comes in one submodel in terms of driveline configuration for mileage purposes: front-wheel drive. It is also interesting to note that the Edmunds list shows SUVs and light trucks on the top 10 C4C list, which, with the exception of the Escape, are absent from the DOT list. Furthermore, the DOT list would seem to indicate that if U.S. companies were making vehicles consumers would not buy before, they will buy them now, at least if they are paid to do so.

4. Stimulating the economy: Still questionable.

As early as before the program was officially announced, dealerships had begun to make deals with customers on clunkers trade-ins, expecting to be able to recoup the vouchers post-deal. Though the program reportedly came in at $2.88 billion of the allotted $3 billion budget, there were still dealerships that had not received their payments – some reaching tens of millions of dollars, and some that figured they might never get paid. There were people trying to get clunkers deals done in the final weekend of the program, and dealers were turning them down due to uneasiness about being reimbursed.

Even after the changes in qualifying trade-ins left some dealers high and dry with non-qualifying cars, there were problems with the administration of the program and logistics of getting the documentation approved for legitimate transactions. Several dealership employees were concerned about this even during the first week of the program. The general sentiment from dealers was that writing contracts, making commitments and then subsequently asking customers for an extra $4,500 is not good business.

Used vehicle sales and the vehicle salvage industry have reported that their businesses have been impacted negatively by the program. It is very easy to jump on a used car Web site and see that used vehicle values dropped off significantly when it became $4,500 easier to get a brand new car. Similarly, most of the value of a salvage vehicle is in the drivetrain, and motors of clunker trade-ins were made inoperable and unrecoverable by the tenets of the bill. Though no one reported destroying any Ferrari 308 motors, there were no shortages of YouTube videos showing cars that typically would have been on the used car lot – cars many people would love to have – being destroyed.

5. Spending money quickly: Pass.

A billion in 6 days is quite a feat. The coverage of the “success” of the first week of the program was impressive. However it left me with this question: Who would have bet against paying customers to buy things?

Overall, the program seems to have been effective at meeting its stated mission, but the unintended consequences are still being worked through, with some possibly yet to surface.

Now that we are far enough away from the close of the program to see some post-clunkers sales numbers, it appears that the initiative sucked most of the car sales out of Q4 of this year. More interestingly, prior to the program, sales were already starting to revive organically. If one looks at the numbers, it seems likely that we traded long-term rebuilding of the auto market for a one-time boost. If the numbers continue to hold, they will show that nearly everyone who was in the market for a car in the near future and had a trade-in got a clunker deal done. Again, only time will tell, but the September numbers are not only horrible, they are way off the upswing trend that was manifesting recently.

The other factor no one is talking about is the nature of the auto market itself. It could be that a post-economic collapse, the size of this market and the way people decide to purchase new vehicles may be altered irrevocably. Credit is still off, home values are not rebounding quickly and banks and liquidity are still points of contention for the national economy. Unemployment is still quite high, despite the wacky stimulus program. It is entirely possible that 16-17 million units a year is no longer a reasonable or sustainable turnover rate for this industry. The pie may be shrinking. Total units sold in 2008 approached 13 million, and there are no current signs pointing to a divergence from that figure, incentives or not.