Monthly and quarterly sales numbers, the distorting effect of government subsidies, and the challenge for subsidized industries to wean themselves off the incentives—from the business and economics angle there’s lots more to come on cash for clunkers.

 

Mr. Thompson’s bad-for-the-environment charge is particularly provocative.  He says that since an SUV with the same mileage improvement as a car qualifies for a higher ($3500) rebate, people are being subsidized to do the very thing—buy an SUV—that was a major cause of Detroit’s final implosion once the worm turned, ‘the worm’ being high oil prices and heightened concern over US dependence on foreign oil supplies.

 

Mr. Thompson also points out that scrap dealers do not want the clunkers because, under the program, they cannot have re-saleable working engines thereby eliminating any significant profit potential.  Road Rules is watching for more on this important “detail.”  Ensuring careful and thorough recycling of scrapped clunkers is a major challenge, especially when the demand for recycling services is soaring.

 

BC economists are also challenging the effectiveness of related programs like the rebate programs encouraging a switch to hybrid vehicles.  A UBC study based on data from 1989 to 2006 found that the subsidy programs are not turning people away from buying gas-guzzling SUVs, vans or trucks but rather are enticing people away from purchasing relatively fuel-efficient conventional cars.

 

Ambarish Chandra, one of the authors of the UBC study said, “[I]f the intention of the rebate programs is to replace gas guzzlers with hybrids, they are failing.”  Since the introduction of rebate programs, sales of large vehicles in North America have risen steadily and the majority of purchasers were not motivated by the rebates as they had planned to buy these vehicles anyway.  In short, rebates may be subsidizing (as Derek Thompson argues) planned purchases and are not creating the intended trend toward greater fuel economy.

 

One aspect of retiring the least fuel-efficient vehicles that is not getting much coverage is the potential collateral improvement in overall crashworthiness.  This is because newer cars are not only more fuel-efficient and cleaner burning, they are also safer cars.  ABS brakes, side-curtain airbags, electronic stability control—more and more new cars including non-luxury models are better equipped with these safety technologies.  The potential savings in health care costs, not to mention the diminishment in the misery that flows from the fatalities and injuries suffered daily from vehicle crashes could be as significant as any of the highly touted environmental benefits.