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Cash For Clunkers: The Brookings Institution Got it Wrong

A few days ago, the Brookings Institution issued a report suggesting that Cash For Clunkers didn’t have the economic or environmental impact it set out to accomplish.  The Brookings Institution seems to have missed the larger point on why Cash For Clunkers was initiated in the first place. The entire program may have been marketed as a means of spurring the economy, or reducing emissions, but the bottom line is much different. Cash For Clunkers was simply a relatively inexpensive way of paying off dealers and the National Auto Dealers Association to look the other way when the government started shutting down GM and Chrysler dealerships across the country.

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I say “relatively inexpensive,” because it cost taxpayers $2.85 billion. As a result, dealerships in small towns across the country sold 700,000 cars – $2 billion worth of inventory.

Cash For Clunkers: The Brookings Institution Got it Wrong

Almost $3 billion is a lot of money, mind you, but we floated $431 billion to 17 banks located in a handful of cities, money that you never saw spent in your local pizza joint. You could find $2.85 billion under the couch cushions in Citigroup’s lobby.

It provided enormous leverage with auto dealers, and the National Auto Dealers Association, one of the largest lobbying groups in America. A big part of the auto industry bailout was restructuring agreements with dealers. The dealer agreements alone were poised to cause all kinds of issues for GM if it decided to shut down as many dealerships as it hoped, without pressure from the government.

Oldsmobile

There’s no telling what General Motors paid Oldsmobile dealers when it shut that brand down. The more-or-less “official” number (according to a December 4, 2006 article in the New Yorker) was $1 billion paid out, not including undisclosed payments and lawsuits that – in several cases – are still ongoing.

Cash for Clunkers3

When it went through the restructuring, GM would shut the Pontiac, Hummer and Saturn brands. On the docket were almost 2,700 GM dealerships that were all looking to get paid to go away. That doesn’t include the 800 Chrysler dealers set to close up shop.

Cash For Clunkers had nothing to do with the environment or spurring the economy. It had everything to do with keeping the remaining dealerships moving, and getting them to keep their collective mouths shut as dealerships across the nation were forced into closing their doors.

If you think it was for any other reason, you’re missing the point.