Final Analysis: Six Reasons Why the 'Cash for Clunkers' Program Gave Us Gas

Its been a little over a month since the widely popular, but controversial 'Cash for Clunkers' program ended its run. While the program received more public criticism than praise, from all accounts here is why we think the program worked:

1. Since the recession, we finally saw a government-run program that everyone reaped the benefits.

While the banks only prospered from the government's recent financial aid package, with the 'Cash for Clunkers' program, the average American consumer actually reaped the benefits. U.S. sales of cars and light trucks fell to just under 746,000 in September, down 41 percent from August, without the government's financial package. Yet, because of the 'Cash for Clunkers' government-run program, September has been the best-selling month on record for this dismal year. The program helped boost August new-vehicle sales to their first year-over-year increase, since October 2007. Demand hit an 11.1-million unit seasonally adjusted annual sales rate in July and a 13.7-million unit rate in August. Through June, the sales rate had not exceeded 9.9-million this year.

2. Automakers were able to increase production and clear out aging inventories with the assistance of the government.

Industry-wide inventories fell to 1.4-million, or 30 days, on Sept. 1 from 48 days Aug. 1 and 64 days July 1, according to the Automotive News Data Center. This program has caused some automakers to add second shifts, calling back some recently laid off auto workers to shore up sagging inventories. Some economist believe that this program has created 44, 000 additional jobs and has avoided the layoff of others, which more than likely would have occurred prior to the government stepping in.

3. 33% of customers who would never have been in the market were pulled in because of 'Cash for Clunkers.'

About a third of customers who participated in the 'Cash for Clunkers' program would not have purchased any vehicle without the government incentive, a new study says.

In a survey conducted by consumer site Cars.com, 30 percent of cash for clunkers buyers said they had not planned to buy a vehicle at all, but were lured to showrooms by the $3,500 or $4,500 government rebates. About 55 percent said they had planned to buy a used vehicle but bought a new one because of the federal offer.

4. The government convinced consumers to trade-in for more fuel-efficient vehicles.

The program provides good news for the environment, a 60 percent improvement in fuel economy between the trade-in and new cars purchased, according to CARS.gov. The average fuel economy of the vehicles traded in was 15.8 miles per gallon and the average fuel economy of vehicles purchased is 24.9 mpg, which equates to a 58 percent improvement.

5. Dealers made money from selling new vehicles again.

As a result of the 'Cash for Clunkers' program a number of new-vehicle dealers doubled their new-vehicle profits in September. In fact, a number of dealers refused to discount their vehicles. The only discount that was being offered was the $3,500 to $4,500 government incentive. We spoke to a number of dealers who emphatically refused to bulge on pricing, during the program. The dealers were definitely in the driver's seat. (Conversely, once the program is over the consumers will be in control again. Dealers will be begging for business.) Furthermore, a number of automakers reduce the incentives they offered, when inventory began to run low.

6. Dealers have been repaid by the government.

A number of dealers made the news, bailing out of the program before it actually ended due to lack of trust with the government-run program. Ironically, as of Saturday, October 3, 2009, according to CARS.gov, the number of vouchers paid and approved for payment: 672,199, which equates to a dollar value of $2,829,721,500. The government had reserved $3-million for the program.

To the critics surprise, approximately 99 percent of the submitted claims have been paid. Where's the media now? Where are the dealers who complained about the program and refused to honor additional deals?

Just wondering:Is this elitist Harvard business professor willing to retract his critical analysis he wrote about the program? I guess this is why some folks should stay in the classroom where theory is taught and out of the real world where business is conducted! Is this proof that the government should overhaul the health care system with a public option? Was the $3-billion investment from the government program worth the cited benefits? And, will this encourage dealers and automakers to develop a program that will entice people to buy a new-vehicle without the aid of the government?