CARS

Who would have guessed that CARS, the Car Allowance Rebate System, program would be such a success? Well, to tell you the truth, I did. I was thinking about doing a post about the program before it started, but decided that since I did not have much to say, other then it would be a big success, it would be a useless post.

I previously posted about pent up demand for automobiles and my belief that Americans want to start buying again. With the recession reaching the bottom, the CARS program was the little nudge needed to get many potential car buyers to buy. From a domestic manufacturing perspective, the CARS program is a great success. My only major issues with the program are that the individual rebates are too large and there was no additional incentive to buy hybrids.

The CARS program is needed for many reasons. The most important reasons are to get the automobile selling, in significant numbers, again and to incent buyers to buy more fuel efficient vehicles. People did buy, as shown by the fact that the program “sold out” in only a couple of weeks. As for improving fuel efficiency, the Transportation Department reported that for the first 80,000 rebate application the average fuel efficiency of the new vehicles was about 61% better than the average for the vehicles they were replacing.

A big plus for domestic companies is that out of the above applications, 47% were for GM, Ford or Chrysler. This is great since it is better than the 45% those companies had over the past few months. The real good news is that 60% of the new vehicles were cars, which the imports tended have an even larger share. In any case, over 50% of the vehicles sold for this program were manufactured in the United States.

Did the government give too big of an incentive? Yes. Although this is not really a domestic manufacturing issue, should the incentive be scaled to provide more of an incentive to hybrids? Yes. I can live with these flaws? Yes. The vehicles are selling again and the incentive goes to individual families. Overall the program stimulates the economy, reduces the need for imported oil by about 85,000 barrels a month, and the vehicles are safer for the driver and occupants. Finally, there is a useful program that helps more than just Wall Street.