Edmunds and Obama Fight it Out Over Cash for Clunkers ~ Hybrid Car Review
Hybrid Car Review: Edmunds and Obama Fight it Out Over Cash for Clunkers

Friday, October 30, 2009

Edmunds and Obama Fight it Out Over Cash for Clunkers

The Cash for Clunkers Program is over and done, but the overall benefit and cost is still being debated.  On Wednesday, Edmunds laid out a study showing it cost taxpayers $24,000 per vehicle sold under the Cash for Clunkers Program.

Edmunds Lays Out the Cost
What it boils down to, for Edmunds, is despite 690,000 sales being made under the Cash for Clunkers Program, they believe only 129,000 would not have been made otherwise.  They based it on what the prediction for sales was, plus the 'hangover' affect slowing sales before and after the program

"Our research indicates that without the Cash for Clunkers program, many customers would not have traded in an old vehicle when making a new purchase," Edmunds.com Senior Analyst David Tompkins, PhD told AutoObserver.com. "That may give some credence to the environmental claims, but unfortunately the economic claims have been rendered quite weak."
The White House Gets Angry

That analysis seems to have ticked off the whitehouse.  Waxing on the sarcastic side, the Whitehouse blog accuses Edmunds of attempting to grab headlines (which they did: CNN).  The White House went on to say Edmunds was saying "all the other cars were being sold on Mars."

I think their counter was strong enough not to need the sarcasm, but that's just me.

Anyways, the White House points out that "people were drawn into dealerships by the Cash for Clunkers program and ended up buying cars even though their old car was not eligible for the program."  And 2) "Major automakers including GM, Ford, Honda and Chrysler all increased their production through the end of the year as a result of this program, which will help boost growth beyond the third quarter."

The White House points to a CEA report, which estimates the number of sales made as a result of the CARS program at being 3-4X higher than that of Edmunds.  There's a lot of fuzziness around both numbers, but that's the problem with these analysis.

The report cited by the White House says exactly that in the first sentence of their conclusion: "The analysis contained here is necessarily speculative, because little can be said with confidence about two key questions: what is the time frame over which the “payback” effect will occur, and what would the pace of clunker-replacement-induced demand for new cars have been in the absence of the program?"

Edmunds Reply
Edmunds has fired back saying "The truth is that consumer incentive programs are always hugely expensive when calculated by incremental sales — always in the tens of thousands of dollars. Cash for Clunkers was no exception."  They also point out the claim for drawing potential customers in was "widely supported by anecdote but by little analysis."  And finally "the economy is recovering accompanied by improved car sales. No manufacturer increases production -- a decision with long-term consequences -- based on the 30-day sales blip triggered by an event like Cash for Clunkers."

As an aside: One wonders if, like the banks, the auto makers started increasing production so quickly based on pressure from the government.   The banks were told to take the loans being offered, and GM and Chrysler are still the major beneficiaries of government 'aid.'  It's fair to suppose the production increases may have been political decisions, even if they weren't asked to do so.

Who Wins?
So, who's right?  I'd say they both were.  Certainly, when Edmunds focused in tightly on what the cost per vehicle was, that cost is going to be high.  And they are certainly right to say that most of the sales during the program would have happened anyways.  The number they use may be low, but sales would have happened with or without the CARS program.

I would argue the Dept of Transportation and the Whitehouse did not need to be sarcastic in their counter, but they definitely were correct in pointing out the bigger picture.  But that picture is not as black and white as they say.  The long term economic recovery is what is driving the car makers to increase production, not the C4C program.

Was the program helpful at a low point for the manufacturers? Absolutely. Although it was harder on the dealers than the administration would probably want to talk about, Edmunds figures show at least an increase of over 100K sales. That's not nothing.

But the high cost per vehicle is also a key reminder that such programs, while helpful for the overall economy, do cost a lot to run and the tax payers paid it. Was there a payback? Was it worth it? These, unfortunately, aren't answerable. Not in the real world, which is too fluid and when either direction can find indicators for it.

Follow Up
It seems that Detroit News writer David Shepardson is siding with the White House in their argument with Edmunds. He points out (See
detnews.com) the different estimates: Ford says 30-40 percent of the sales were from the Cash for Clunkers (CARS) program (210,000-280,000), GM thought it was 500,000 and Moody estimated the difference at 60 percent (420,000).

That's quite a range of numbers to deal with.  Edmunds is clearly on the more pessimistic side, while GM is clearly the most optimistic about the affect, although both the government and the Moody figures are obviously on the more 'optimistic' side.

But most damaging to Edmunds is the quote from Mike Jackson, chairman and CEO of AutoNation.
While Edmunds is usually highly respected within the automotive industry for its accuracy and reliability, he said, its analysis of the cash for clunkers program is "shoddy."

"Simply put, they've misrepresented the facts, and the White House is completely justified in calling them out on it," Jackson said, adding that it appears "Edmunds' political views have tainted their usual rigorous approach to research."
Ouch! The shoddy remark in particular was pretty harsh. None of those involved in the argument can truly be treated as disinterested parties, however. Any estimate from Ford or GM, especially, have to be taken with a grain of salt. The same can be said of AutoNation, Moody's and Edmunds. And certainly the White House has a stake in how the program is perceived.

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