This is an excerpt from EERE Network News, a weekly electronic newsletter.

September 02, 2009

"Cash for Clunkers" Replaces 700,000 Vehicles with More Efficient Models

The popular "Cash for Clunkers" program ended its brief run on August 25, and the program is estimated to have removed nearly 700,000 inefficient vehicles from U.S. roads. Officially known as the Car Allowance Rebate System (CARS), the program achieved greater fuel economy gains than originally expected, as consumers chose more fuel-efficient models than were required by the program. In fact, the average fuel economy of the traded-in vehicles, which were crushed, was 15.8 miles per gallon (mpg), while the average fuel economy of the newly purchased vehicles was 24.9 mpg. That's a fuel economy gain of 9.1 mpg, or 58%.

That figure makes sense for trade-ins of old cars for new cars, because those trade-ins earned the maximum rebate with a 10 mpg increase in fuel economy. However, analysts expected trade-ins of light trucks (sport utility vehicles, pickups, and vans) for new light trucks to drag down the fuel economy gains, as such trade-ins could earn the maximum rebate with a fuel economy gain of only 5 mpg. But according to the U.S. Department of Transportation (DOT), such truck-for-truck trade-ins were less common than expected, as 84% of the program participants traded in trucks, but only 41% purchased new trucks, which means that more than half of the truck owners traded their vehicles in for a car. The results are even starker for heavier vehicles, as 8,134 heavy work trucks were traded in, but only 2,408 new heavy work trucks were purchased, and 116,909 large pickups or vans were traded in, but only 46,838 new ones were purchased. The fuel economy of the newly purchased cars was also 19% greater than the average fuel economy of all new cars available in the United States. See the DOT press release on the program results and the article from this newsletter on the program rules.

The CARS program allowed dealers to start providing rebates to customers on July 1, even though the program didn't officially start until July 24. The billion-dollar program proved so popular that Congress had to quickly approve an additional $2 billion for the program, which was approved by President Obama on August 7. Despite the extra funding, the funds went quickly, and the DOT announced on August 20 that the program would end on August 24. Dealers had until the evening of August 21 to submit their paperwork, and the results demonstrate that the DOT timed it pretty well, with rebate applications worth $2.877 billion submitted to the agency, leaving only $123 million in rebate funds unaccounted for. The program proved so popular that the DOT changed the rules, allowing people to buy cars even if the dealer was sold out on that model. See the DOT press releases on the program shutdown and the modified rules, and for background information, see the articles from this newsletter on the official start of the program and the $2 billion extension.

According to DOT, the top vehicles traded in under the program include sport utility vehicles, pickups, and vans from Ford, Jeep, Dodge, and Chevrolet. The top 10 new vehicles purchased include cars from Toyota Motor Sales, American Honda Motor Co., Hyundai Motor America, Nissan North America, and the Ford Motor Company, with the Ford Focus and Ford Escape both making the top-10 list. The increased demand caused Ford to boost its production of the two vehicles at its assembly plants in Kansas City, Missouri, and Wayne, Michigan. Ford experienced year-to-year sales increases in both July and August. Toyota had three vehicles—the Corolla, Camry, and Prius hybrid—on the top-10 list, and the company estimates that it accounted for nearly a third of the fuel savings achieved by the program. Honda saw a near doubling of its sales of the fuel-efficient Fit, and the DOT notes that Honda will increase production at two plants in Ohio and one in Alabama. General Motors Corporation (GM) also experienced gains from the CARS program, attributing it to a 159% year-to-year increase in August sales of the Chevrolet Aveo, a 13.8% increase in Chevy Cobalt sales, a near doubling in Chevy Equinox sales, and a 26% boost in Chevy HHR sales. GM plans to increase production to restock inventories. Chrysler also credited the program with increased sales and has raised its production by 50,000 vehicles. See the Ford press releases on its production increases and sales increases, and the press releases from Toyota, Honda, GM, and Chrysler.

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