An Omen in the Cash for Clunkers Results

Chris Edwards is right. Tad DeHaven is right. Cash for Clunkers was a shell game and an utter waste of taxpayer money. But C4C offers another teachable lesson, which is that the 35.5 mile per gallon by 2016 fuel efficiency standard will kill General Motors.

In just the latest example of government policies working at cross-purposes, the president buys a 60 percent stake in GM at a cost to taxpayers of $50 billion (conservatively), and simultaneously supports a mandate—in the rigid CAFE standard—that will severely handicap GM, while assisting the competition.

C4C gave consumers the opportunity to express their preferences in the high mileage vehicle market, and GM failed miserably. Consumers of high mileage vehicles prefer Toyotas, Hondas, Fords, Nissans and Hyundais, whose offerings comprise the top ten best sellers list under the program. Not a single GM (or Chrysler) product made the top ten under C4C.

GM’s competitive strength is in the luxury car, muscle car, SUV, and pick-up truck categories. But to sell those cars in 2016, GM will need to sell many, many more small cars than it does now to achieve an average fleet fuel efficiency of 35.5 mpg. So, while GM’s competitors are free to target the gas-guzzling market because there is already plenty of demand for their high-mileage vehicles, GM’s capacity to compete where it is strongest will be conditioned on its ability to cultivate an obviously very skeptical market for its small cars. And that bodes very poorly for GM’s future.

For more on GM’s future and the damage done to important U.S. institutions, like private property rights, the rule of law, the free enterprise system, and the proper separation of economy and state as a result of the Bush/Obama auto intervention, you are welcome to join us for a policy forum at Cato on October 15 at noon.