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,
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.