Did "Cash for Clunkers" Deliver? The Effects of the Car Allowance Rebate System

Meghan R. Busse, Christopher R. Knittel, Jorge Silva-Risso, and Florian Zettelmeyer

November 2012

Meghan R. Busse, Christopher R. Knittel, Jorge Silva-Risso, and Florian Zettelmeyer, November 2012

In this paper we analyze whether the 2009 "Cash for Clunkers" program was indeed, as U.S. Transportation Secretary Ray LaHood suggested at the time, "good news for ... consumers' pocketbooks." To do so we investigate how much of the rebate benefited consumers as opposed to dealers, whether the rebate crowded out or stimulated manufacturer incentives, and whether the scrapping of a large number of vehicles affected prices in the used-vehicle market. We find that Cash for Clunkers was consistently positive for consumer welfare on all three dimensions that we measure: First, consumers received the full amount of the rebate; second, the program stimulated manufacturer rebates (thereby increasing the benefits to customers beyond the value of the Cash for Clunkers rebates alone); and third, the destruction of low-fuel-economy, old, high-mileage vehicles did not raise prices in the used-vehicle market.

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