In July, the government began the Consumer Assistance to Recycle and Save Act of 2009 (CARS), which the media immediately dubbed the “Cash for Clunkers Program.” Consumers would receive either $3,500 or $4,500 on a trade-in of their old vehicle toward the purchase or lease of a new vehicle that had been approved by the program. Consumers would also receive a credit for the scrap metal that their old car would be turned into. The general guidelines were simple—the vehicle must be less than 25 years of age and must get 18 or fewer miles per gallon (MPG).
The CARS program attempted to accomplish two things: one, to take fuel-inefficient cars off the road and recycle them to help the environment, and two, to stimulate the economy. The program was originally intended to run from July 1 until November 1, 2009; however, because it was incredibly successful, the government had to close the program on August 26, 2009.
The U.S. Department of Transportation measured the success of the program. The government spent $2.877 billion of the $3 billion allotted for rebates. The cars that were most purchased were those made in America, including the Ford Focus, Toyota Corolla and Honda Civic, meaning that the CARS program helped to keep people employed. The White House Council of Economic Advisers predicts that the CARS program will help boost the economy by .3 to.4 percent in the third quarter of 2009 and will help to sustain the increase in GDP during the fourth quarter because the auto industry will need to continue production to replace the depleted inventory.
The program took more trucks—whose average fuel economy was only 15.8 MPG—than passenger cars off the road. The new vehicles that were purchased had an average MPG of 24.9, representing a 58 percent improvement, which will help the environment.
But did the success of CARS stimulate financial institutions that offer auto loans?
One credit union in the Washington, D.C., area has spent years cultivating partnerships with auto dealerships. The State Employees Credit Union (SECU) in Maryland offers purchase and refinance options on new or used vehicles. Historically, July through September have been peak months in the field of auto loans; however, this year Fran Koung, Indirect Program Manager for SECU, anticipated that the quantity of loans would decrease because of the economy. Instead of decreasing as she expected, sales remained the same. This is considered successful given that the expectation was a decrease.
One thing that did change was the number of new car loans. Usually, SECU finances 60 percent of their loans for used cars. During the CARS program their the number of new auto loans exceeded that of the used cars.
While only a handful of those new vehicle loans were actually CARS-related, Fran Koung feels that the CARS program contributed to increasing consumer confidence. Many local dealerships have begun to offer rebates under the guise of “cash for clunkers,” which has helped to get buyers interested.
The First National Bank of Scotia had a successful May and June related to auto loans. John Buhrmaster, CEO of First National, said the activity continued into July as people raced to take advantage of the federal CARS program, low interest rates and other deals.
Despite the objections from some taxpayers, the program did benefit many dealerships and financial institutions across the country. Sales and profits were up for many dealers selling midsize and compact cars that were moderately priced. The dollars generated from the 700,000-plus cars sold are expected to have an overall positive effect on the economy in the fourth quarter of the year.
