“How cash for clunkers has affected low-end used car prices”

Abstract

On June 24, 2009, President Obama enacted the Consumer Assistance to Recycle and Save Act of 2009. The goals of this act were to increase the average fuel efficiency of vehicles on the road, to reduce vehicle emissions pollution, and to stimulate the economy (NHTSA, 2009). Within the act was the creation of the Car Allowance Rebate System (CARS) that offered consumers the opportunity to turn-in their less fuel efficient vehicles in exchange for credit toward a new vehicle purchase. The CARS program became more widely known across the United States as the Cash for Clunkers program. This study aims to look at a potential unintended side effect of the program—the increase in affordable used car prices as a result of the Cash for Clunkers program’s impact on the supply of used vehicles, and in turn what this price increase could mean to low-income families looking to low-cost used vehicles as a solution to their transportation hardships. This research will examine the effects of Cash for Clunkers on the retail price of the top ten vehicles turned in by participants of the program. Automobile characteristics and other economic indicator variables were placed into pooled OLS, random effects, and fixed effects panel studies in order to separate out the effects of the program on used car prices after the program’s initialization in July, 2009.The results of the studies show that despite obvious increases in used car prices since the program’s initialization, the Cash for Clunkers program has had a minuscule impact on the price of used cars. On average, used car prices increased $13 as a result of the program.