Ford Fondly Remembers Cash for Clunkers

With social distancing measures throwing automotive sales straight into the dumpster, Ford is reportedly getting ready to float some interesting ideas by the U.S. government. It’s vying for a stimulus deal aimed at giving the industry a jump start after the health crisis posed by the novel coronavirus subsides.

One of the models Ford’s pushing is unsettlingly familiar.

According to Bloomberg, Mark LaNeve — Ford’s vice president of U.S. marketing, sales and service — is fondly reminiscing about Cash for Clunkers and thinks it’d be a great way to bolster auto sales after COVID-19 takes a hike.

“We think some level of stimulus somewhere on the other side of this would help not only the auto industry and our dealers, which are a huge part of our overall economy, but will help the customers as well,” LaNeve explained to the outlet over the phone. “We’re in discussions about what would be the most appropriate.”

From Bloomberg:

Those discussions are internal at Ford for now, but are eventually expected to involve the federal government, LaNeve said a day after automakers reported their slowest monthly pace of U.S. sales in a decade. One model being considered is the 2009 “cash for clunkers” program that helped stimulate auto sales following the global financial crisis by encouraging drivers to turn in an older car in exchange for thousands of dollars toward buying a new one.

“Cash for clunkers was very effective at that time,” LaNeve said. “It would be nice to think we could have something equally as effective for 2020 when we get out of this because it was a great program.”

Let’s reexamine the recession-era Car Allowance Rebate System (aka Cash for Clunkers) the government enacted in 2009 to see if LaNeve has his lid on straight. The system was intended to provide economic incentives (money vouchers valued between $2,500 and $4,500) to encourage U.S. residents to purchase new vehicles with greater fuel economy amid the Great Recession, provided they had something older to trade in. But stimulating a weak economy was only half the equation; the Obama administration also hoped it would reduce pollution and put more Americans into safer cars.

In terms of participation, the program was a success. Within a month of being introduced the appropriated funds were exhausted, forcing Congress to approve an additional $2 billion (bringing the grand total to $3 billion). That first month saw a significant increase in auto sales (mostly for Japanese brands). While there are conflicting studies regarding what happened afterward, sales were noticeably down in the proceeding months. A study published in the Quarterly Journal of Economics in 2012 framed it as a wash, saying “the effect of the program on auto purchases is almost completely reversed by as early as March 2010 — only seven months after the program ended.”

Subsequent studies backing up those claims, few of which bother dive into the high number of used vehicles that were destroyed or failed to become charitable donations to local organizations. Depending upon who crunched the numbers, Cash for Clunkers was either economically neutral or resulted in short term gains that ultimately resulted in a net loss. The popular public presumption embraces the latter scenario and echo countless articles written after 2009. Those that came before tend to have a comparatively optimistic opinion of the scheme.

From an environmental standpoint, the program seems to have worked slightly better. Most studies peg Cash for Clunkers as reducing anywhere from 5 to 30 million tons of carbon emissions from vehicle tailpipes. That’s quite the spread, however, and most experts agree that the recession, in addition to abnormally high fuel prices, was already pushing consumers into smaller automobiles with superior fuel economy. The Car Allowance Rebate System was unlikely to be the contributing factor here, with even its advocates suggesting the environmental improvements were minimal and costly.

With the above in mind, we are hoping Ford has other ideas it’s willing to float by the federal government — because a re-do of Cash for Clunkers seems undesirable when viewed broadly. It’s understandable why the company would be interested in a stimulus deal of some kind. Ford reported a 12-percent decline in first quarter U.S. deliveries on Thursday. With its core rivals undoubtedly enduring similar losses, we expect other automakers to embrace whatever help the government can offer.

[Image: Paul Brennan/Shutterstock]