It did nothing.

Let me clarify that. It did nothing in the new car market. Ed Morrissey didn’t cover the effect it had on the used car market.

He writes:

The data show that the government stimulus did increase sales — but that the following month, sales dropped in proportion to the spike.  The three-week incentive program simply moved sales from the future into the present, and did nothing to increase organic demand even in a relatively short run.  Sales had already begun to rebound in the spring, even with the Cash for Clunkers proposal moving through Congress.

What this chart doesn’t show is the poor timing of the program.  C4C hit as dealers would have been discounting vehicles anyway, in order to make room for the new models that arrive in September.  Instead of hitting the point where demand might flag, the C4C program overlaid an incentive-rich period in the sales cycle for auto dealers.  That killed demand when the new models did arrive, which likely forced dealers and manufacturers into pushing hard on incentives that may not have been needed otherwise.

He adds that the program did cost Americans because Congress borrowed and spent billions to promote it.

How did removing nearly 700,000 used cars from the national inventory affect price? Let’s think back to Econ 101 in college…

Manheim Consulting released a report on 2009 car sales. Per their executive summary (full report is $250):

The 15th edition of Manheim Consulting’s Used Car Market Report (UCMR) explores the economic and industry trends that specifically influenced the demand for and supply of used vehicles in 2009. It was an unprecedented year during which used vehicle prices soared as consignors had fewer vehicles to remarket. Meanwhile more franchised dealers turned to used vehicles to support their stores and independent dealers fine-tuned their inventory to emphasize faster turnover. Dealers often repeated that finding the exact models they needed took more effort than in the past.

Reason Magazine wrote:

Too bad used cars are becoming much more expensive. Demand for used cars is up, and supply is down. People traded in 3 million fewer cars last year than in the pre-recession years. And perhaps you recall those 677,842 functional cars we junked as part of the Cash for Clunkers plan? Yeah, those aren’t on the market either.

Like millions of Americans, I prefer to buy used cars. Readers may remember that my life was spared in a horrific accident with a tractor trailer that totaled my car back in January.  This forced me back into the used car market while I was between jobs this winter.

Given financial constraints and an abhorrence of borrowing money for a depreciating item, I balked at spending very much. I grew up listening to Larry Burkett on the radio, so I’m brainwashed to only buy used cars. I thought it would be tough, but not impossible. I wanted to replace my late model Accord with another one. In 2006, I purchased my now-totaled 1996 Accord for around $5,000 with 48,000 miles on it to replace my 1989 Accord that died with 205,000 miles. This followed a pattern of other low-mileage used cars that my parents always purchased.

There was nothing on the market. Absolutely nothing. Used cars were at a premium. Even adjusting for inflation since 2006, the few used cars for sale had higher miles and were around 30% higher than the market in 2006. I looked for four months in both Tennessee and the DC Metro area. I finally ended up buying my mom’s late-model Honda Accord when she decided to get a newer minivan.

The differences in the two searches were staggering. The volume of inventory was dramatically lower than in 2006. The market had responded to the most basic law of economics. When supply is low but demand continues, the price goes up. Cash for Clunkers killed the used car market.

This leads me to ask a question that Democrats always love to throw around: what about the poor people?

I’m middle class, and I struggled to find a car. What about low-income people who depend on clunkers? The Cash for Clunkers program directly pitted two key Democratic constituencies against each other: environmentalists and the impoverished. Individuals making only  minimum wage don’t have the luxury to care about polluting the environment. And before you attack me, please remember that I’ve worked extensively with social service organizations and spent two years as an AmeriCorps VISTA. These are fields that I know and understand.

Kiplinger reports that the market is unlikely to rebound until 2012. Hope you don’t have to look for a used car anytime soon!

Yes, capitalism is harsh. But you know what’s even worse? The government interfering with markets that indirectly end up hurting the very people they claim to be helping.