Because the CARS Act rewarded purchases of fuel-efficient cars, the act predominantly benefitted automakers that are best known for their fuel-efficient cars. That put Detroit’s automakers at a disadvantage and narrowed the opportunity for GM, Ford and Chrysler. Ford’s recent success has been in the truck and SUV categories, and CARS Act buyers in large measure went with import nameplates including Toyota, Honda and Subaru. These brands all have stateside production facilities, and the boost that the CARS Act provided certainly provided short-term benefits to their U.S.-based suppliers and employees. The downside, however, is that the CARS Act did not benefit Michigan nearly as much as some hoped upon its passage. Cash For Cars Sydney

Cash for Clunkers did very little to help American automakers fix their core problems: namely the adverse cost drivers and high operating leverage that put the big three automakers at a severe competitive disadvantage in the first place. GM in particular was saddled with a high debt ratio and pension and legacy commitments to retirees in a time where there are three retirees for every working GM employee. GM’s cost drivers were higher, too, compared to newer rivals. GM requires more labor hours per unit versus its competition, its numerous brands compete with each other and serve to segment and cannibalize sales and increasingly add to the company’s opportunity costs for new R&D projects. The results: higher fixed costs and greater variability in the company’s cash flow. When the economy went south, the force took the big three with it in large measure. In GM’s case, only direct government investment and bankruptcy proceedings to help the company shed its losing assets protected the company from going under.

Given the results, Edmunds estimates the cost for each new car purchased under the CARS Act to American taxpayers was $24,000. The average transaction price for CARS Act purchases was just over $26,000. Those numbers don’t merit a return of Cash for Clunkers. Many other motivating factors, including environmental and consumer confidence metrics, would need to be considered before repeating that popular and costly program.

 

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