‘Cash for clunkers’ a waste of money

silicate.jpgLast year, the US administration spent $2.85bn on supporting the sale of 360k autos, by paying owners of older vehicles to destroy them with sodium silicate.

At the time, most people in the chemical industry, and many experts, regarded this ‘cash for clunkers’ programme as being a complete waste of money. And they became even more concerned when European governments followed with similar programmes.

Now a new study for the US National Bureau of Economic Research finds that it “had no long run effect on auto purchases“. Their analysis suggests it increased sales by 360k in summer last year, “but then quickly hurt sales by about the same amount, in effect stealing sales from the future“.

Of course, they can’t also measure the negative impact on chemical companies and converters of suddenly having to ramp up production, only to then see it collapse again. But this clearly happened, causing major disruption to the supply chain. Equally, all the anecdotal evidence suggests the same pattern occurred in Europe.

The underlying problem is that many politicians simply fail to accept that short-term fixes, such as the clunkers programmes, housing tax credits etc, cannot provide ‘escape velocity’ to overcome the real issues underlying the current Crisis. Vast sums of money, and time, are being wasted whilst they remain in this state of denial, as the blog will discuss in more detail at the weekend

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

2 Responses to ‘Cash for clunkers’ a waste of money

  1. john richardson 24 September, 2010 at 9:55 am #

    Hi,Paul

    So what should governments do? Is that for the weekend stuff?

    Who should replace Larry Summers? The Pakistan Cricket Board?

  2. Joe 13 October, 2010 at 7:15 pm #

    I saw video clips where people were destroying good vehicles. This program was a massive failure that resulted in wasted taxpayer dollars.

    A better option would have been to give those vehicles to lower income families, high school students, and young college kids.

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