Clunker

What Is Clunker?

A clunker is a popular term for an old vehicle that was coined in the 1930s. More recently, the term was used in reference to vehicles traded for a newer, more fuel-efficient vehicle in the U.S. government's "cash-for-clunkers" program, rolled out in 2009. For a "clunker" to be eligible for the program, it must have satisfied four conditions:

1. It had to be in drivable condition
2. It had to have been continuously insured for one year prior to the trade-in
3. It had to have been manufactured less than 25 years before the date of trade-in
4. It had to have a combined fuel efficiency of 18 miles per gallon or less

Understanding Clunker

The cash-for-clunkers program in the U.S. offered drivers of old "clunkers" up to a $4,500 voucher for trading in their old car for a newer, more fuel-efficient vehicle. If an old vehicle was worth more than $4,500, then the program would not have been beneficial as the vehicle owner could have just sold their car to the dealer.

Supporters of the program argued that it was a success because it provided a stimulus to the economy and replaced many fuel inefficient vehicles with more fuel-efficient vehicles that created less pollution. The program, supporters argued, removed about 700,000 fuel-inefficient cars from the road.

Criticism of the Cash-For-Clunkers Program

Many economists, along with some federal government agencies and environmental groups, criticized the program. Several economists called the program an example of the "broken windows" fallacy, which holds that spending creates wealth. They argue that the program failed due to hidden effects and unseen consequences of the program and that the program created a shortage of used vehicles, causing used car prices to surge and harming low-income people. They also argue that the program cost taxpayers $3 billion and that the program did little to stimulate the U.S. economy — even in the short run — because it helped foreign auto manufacturers at the expense of domestic manufacturers.

A 2017 study used data from sales in Texas to evaluate the program. Texas was one of the key markets for the program and was responsible for 6% of overall sales. The study found that 60% of subsidies went to consumers who would have bought a new car regardless. Even after the program ended, there was no significant difference in purchase behavior or car ownership in the state. If cash-for-clunkers had been a success, then there would have been a steep decline in car ownership or purchases. The study also found that the program induced customers to purchase cheaper fuel-efficient vehicles to meet its criteria, thereby distorting the market for fuel-efficient vehicles.

In reality, the National Bureau of Economic Research stated that the program's positive effects were modest and short-lived and that most of the transactions it spurred would have happened anyway. A study by Edmunds claims that the program spurred 125,000 vehicle purchases that would not have otherwise happened at that time, costing taxpayers an average of about $24,000 per transaction. Other studies concurred on the negative net effects, since scrapping the traded-in vehicles required large amounts of toxic chemicals and the engines had to be sent to landfills or smelters.