Case Study 1

“Cash for Clunkers” Case Study

 Case Study 2

“Cash for Clunkers” Case Study

On June 24, 2009, President Barack Obama signed into law the Car Allowance Rebate

System (CARS, commonly known as 'Cash-For-Clunkers'), one of numerous stimulus programs

whose function was to reallocate expenditures by households, businesses, and governments from

future periods when the financial system is expected to be stronger, to the present when the

economy has a wealth of unemployed resources that can be put to work at low net economic cost

(Whitehouse, 2010).

The “Cash for Clunkers” program offers rebates of $3,500 to owners who surrender cars

rated at less than 18 miles per gallon to purchase ones getting at least 22 m.p.g. If the new

vehicle gets at least 10 m.p.g. more than the trade-in, the rebate is $4,500. For SUVs, minivans

and pickups, a 2 m.p.g. improvement is required, while a 5 m.p.g. gain receives the full rebate

(CARS, 2010). The government rebate is taken off the price after manufacturer discounts and

incentives are applied. Reimbursement is wired directly to the dealers, who must show

confirmation that the clunkers have been taken off the road permanently by being “crushed or

shredded,” according to the legislation. The program was initially expected to run four months,

or until the $1 billion was exhausted (CARS, 2010).

Since the introduction of the program critics have cited various objections: Some contend

that it makes poor economic sense and offers very little environmental benefit. Others suggest

that the program excludes the lower income class. While these concerns are valid, the

Department of Transportation had declared the program a success on all fronts and recommends

more of the same such programs in the future.

“Sales of cars and light trucks in 2008 fell to 13.2 million, after averaging more than 16

million a year during this decade” (CARS, 2010). Surrounding this phenomenon, automakers
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were failing and thousands of jobs were being threatened. The housing market was in devastation

and Americans were scrambling to find the light at the end of the tunnel of economic failures.

The Economic State of the Union: 2009 reads,

“For now, to cushion the crash, the federal government must continue and vastly
accelerate equally unsustainable debt stimulus plans, including spending on public infrastructure,
health care and the environment. But as the federal debt has soared from $0.9 trillion in 1980
(following 200 years of world wars, a civil war, depressions, run-away inflation, etc.) to $5.5
trillion eight years ago and $10.7 trillion today, creditors are nearing their limits even for U.S.
Treasuries and the U.S. dollar” (McMillion, 2009).

The American public was convinced that stimulus was the way to reach the light at the

end of the tunnel and the Cash for Clunkers program was just one way to reach this end, to boost

the economy, to attain some semblance of wealth ( however false), and idealistically, save the

ailing environment. The problem, however, is that spending money on a depreciating asset will

not cure an individual’s financial ills. As lucrative as the CARS program has been for the auto

industry and as useful as the program was in preventing thousands of people from losing their

jobs in the auto industry, the program does very little for the individual who in 2009 bought a

new car while their home was in jeopardy of foreclosure or who eventually lost employment in

other sectors of the economy.

The government would have one believe that such a program fixes a leaky faucet and that

spending on an individual basis boosts the economy and in return the individual will reap the

rewards of a newly restored economy. There is some poignancy to this, after all, America is a

democratic, capitalistic society; however, this train of thinking excludes those people who

neither contributed to the poor state of the economy and stand a minimal chance of reaping many

benefits once the economy improves, yet, these are the very folks who possess the “clunkers”

that would make this program successful. In essence, those not a part of the problem have been
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thrust forward as the crux of the solution. The very people who cannot afford to save are now

being asked to spend.

The fundamental problem here is this: Ignorance, irresponsibility, hedonism, and

compulsive behavior are the very reasons this country is in need of a band-aid called a stimulus

plan. These are individual issues that have infected the masses and created a pandemic. This

disease is allowed to spread because of a lack of information and education. On June 24, 2009,

President Obama stamped his named on a band-aid named the Car Allowance Rebate System;

One of several band-aids whose purpose is to shift expenditures by households, businesses, and

governments from future periods when the economy is likely to be stronger. The plan was

dressed up with an attractive depiction of clean air and newly fortunate people driving away in

new cars, escaping from their old clunkers as if they were free at last and bound for lucrative

futures, all because they bought a car. These plans have ignored the fact that individuals acting

alone without the proper resources to make sound decisions contribute to the fundamental

problem. Did anyone bother to explain that a $4,500 dollar rebate today on a Toyota Corolla

would end up costing them $26,767 over five years (including gas) but only if they happen to

have excellent credit? On average, bus passes cost $900.00 over five years.

To amplify this point of the fundamental problem, CARS.gov, statistics show that by

August 14, 2009, under the new program, “83% of trade-ins under the program are trucks, and

59% of new vehicle purchases are cars. The program is working far better than anyone

anticipated at moving consumers out of old, dirty trucks and SUVs and into new more fuel-

efficient cars” (CARS, 2009). This is harmless enough information; however, the report also lists

the “Requested Voucher Dollar Amount by State” and at $80,621,500, Michigan comes in third

after California and Texas in the category. In August 2009, Michigan’s unemployment rate was
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14 percent, while California’s was 12 percent and the state of Texas was at 8 percent (Bureau of

Labor Statistics, 2010). This looks fairly unremarkable as a procession of numbers and perfectly

in line with the statistical data except for a few more facts: Texas is the second largest state,

California is the third and Michigan is the twenty second; moreover, in 2009, California and

Michigan were included in every researched report as one of the hardest hit by the housing

market crisis. Finally, Michigan sat at the epicenter of the auto industry implosion. These are the

people taking on the debt of a new vehicle in exchange for ridding themselves of a “clunker” and

yet the government calls the program a success. This represents an example of individuals acting

alone without the proper resources to make sound decisions and continually contributing the

fundamental problem; perpetuating a viscous, government assisted cycle.

The available information on the Cash for Clunkers program lists only the basic

parameters for instant consumer gratification. The program idealizes a future that may or may

not exist, yet ignores the program’s main reason for being. Participating car dealers are given

rules and regulations to keep them honest, yet no instructions are presented as to how to educate

a consumer on the ramifications of purchasing a product that may become a financial burden in

the long run. So continues the loop that allows big business to profit at the expense of consumer

ignorance.

One possible solution to the fundamental problems of ignorance, irresponsibility,

hedonism, and compulsive behavior could be pulled from some of the most fundamental texts

about individual behavior in an organizational culture and the human factors in project

management. Solving the economic crisis could easily be viewed as a project with the citizens of

this country as the project team and the President, Department heads, and CEOs as project

managers with cross functional duties. The public could be compelled to accept that “their
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personal success is tied to the success of the team” (Wong, 2007). Communication is the key.

Information sharing is vital to the success of a project. Realizing the individual’s role against the

organizational backdrop and acting in an informed, positive manner can make a profound,

prolonged difference.

Another potential solution is to offer an educational stimulus plan, wherein one receives a

rebate for educational programs geared towards math, finance, accounting, economics, and

critical thinking. By empowering people with information to make sound financial decisions the

government would be making strides to not only restore the economy today, but grow a culture

that breeds a more financially responsible future. President Obama said as much himself when

addressing students at Wakefield High School in Arlington, Va. in September, 2009. He said,

“You'll need the knowledge and problem-solving skills you learn in science and math to
cure diseases like cancer and AIDS, and to develop new energy technologies, and protect our
environment. You'll need the insights and critical thinking skills you gain in history and social
studies to fight poverty and homelessness, crime and discrimination, and make our nation more
fair and more free” (UPI, 2009).

How ironic that just three months earlier he signed into law a program that offers the

benefit of protecting the environment and fighting poverty, but provides no educational resources

to meet this end.

Refraining from bias, one could surmise that the “Cash for Clunkers” program was a

success. The program exhausted all of the $1 billion in government funding to subsidize the

program. “It makes auto-makers happy. It makes auto-workers happy. It makes auto-buyers

happy. And because it is easy for the general public to grasp how this simple (simplistic?)

program operates, it produces widespread, favorable sentiment among the voting population”

(Neilson, 2009). In an April 2010 press release the transportation Secretary Ray LaHood

responded to reports released by the DOT Office of Inspector General (OIG) and the General
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Accounting Office on the DOT’s CARS program that “Cash for Clunkers” “successfully

completed its top objectives set out by Congress: stimulating the economy and aiding the

environment through increased car sales and reduction of older, less fuel-efficient vehicles on the

roads” (La Hood, 2010).

Merriam-Webster defines stimulus as “something that rouses or incites to activity”

(Merriam-Webster, 2010). By definition, the CARS stimulus program was a success. The

program roused and incited Americans to trade in over 700,000 vehicles. The exact effect on the

environmental footprint is yet to be realized, however, lawmakers are optimistic.

To date, California’s unemployment rate sits at 12.3 percent and Michigan’s at 13.1

percent. One must hope that none of the 25.4 percent of unemployed persons participated in the

CARS program and took on additional debt, but given the nature of the fundamental problem,

this hope most likely exists as a futile attempt to appease an overly optimistic spirit. Without

education, it is possible to maintain a current position. It is also possible to experience an

elevation beyond present circumstances, perhaps even take flight, but education offers the

freedom not only to sustain elevation, but to soar and distribute seeds of knowledge in order to

elevate others. “Upon the education of the people of this country, the fate of this country

depends”- Benjamin Disraeli (Goodreads, 2010).

The Cash for Clunkers program in many respects has been a success; however, what the

program did not do was attach any resources to make its short term stimulus a part of the long

term solution for the individual consumer - the main contributor to the fundamental problem.

More than 18,908 dealers participated in the program and 690,114 voucher applications

were filed and reviewed by the National Highway Traffic Safety Administration (NHTSA)

(CARS, 2010). I believe that as a part of the dealers’ technical participation requirements, an
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ethical duty should have been imposed upon them to educate each participant about the

ramifications of their new car purchases. Dealer’s should have been required, in addition to

extracting and examining data from individuals’ credit report, to explain to these individuals the

aspects of these credit reports and to deny any potential applicant whose financial well-being

would be jeopardized by a transaction. Dealers should have been required to issue and explain

literature regarding debt and debt management and resources available such as community

programs that offer free debt counseling. Dealers, themselves, should have been required to (at

the very least) take a certifying course on business ethics and counseled on how the focus of

these ethics serves to strengthen an organization called America.

Furthermore, in keeping with the assertion that the “Cash for Clunkers” program would

save money on gasoline and reduce the environmental footprint, Dealer’s should have been

required to explain and issue literature announcing the importance and impact of good vehicle

maintenance so as to not repeat the “clunker” cycle. Along with transaction receipts, and

customer contracts, statements of these ethical compliances and understanding should have been

stapled to each item to be reviewed by DOT executives.

Reference

CARS. (2010). Important things to know. Retrieved August 16, 2010 from http://www.cars.gov/

Chuckypita. (2009). Cash for clunkers program: How the car allowance rebate system works for

you. Retrieved August 21, 2010 from http://www.chuckypita.com/cash-for-clunkers-

program-how-the-car-allowance-rebate-system-works-for-you/
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Department of Transportation. (2009). Requirements and procedures for consumer assistance to

recycle and save program retrieved August 16, 2010 from

http://www.cars.gov/files/official-information/rule.pdf

Goodreads. (2010). Benjamin Disraeli: quotes. Retrieved August 19, 2010 from

http://www.goodreads.com/author/quotes/47030.Benjamin_Disraeli

Maritz Research. (2009). Maritz research findings: Cash for clunkers created significantly more

incremental automobile sales than previously reported, retrieved August 12, 2010 from

http://www.maritz.com/Press-Releases/2010/Maritz-Research-Findings-Cash-for-

Clunkers-More-Successful-Than-Previously-Reported.aspx

McMillion, C. (2010). The economic state of the union: 2009. Retrieved August 23, 2010 from

http://www.manufacturingnews.com/news/09/0116/mcmillion.html

Merriam-Webster. (2010). Definition of stimulus. Retrieved August 20, 2010 from

http://www.merriam-webster.com/dictionary/stimulus

Nielson, J. (2009).

Cash-for-clunkers is a poor choice of stimulus. Retrieved August 23, 2010 from

http://seekingalpha.com/article/153649-cash-for-clunkers-is-a-poor-choice-of-stimulus

United States Department of Labor. (2010). Bureau of labor statistics: California. Retrieved

August 20, 2010 from http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?

data_tool=latest_numbers&series_id=LASST06000003

United States Department of Labor. (2010). Bureau of labor statistics: Michigan. Retrieved

August 20, 2010 from http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?

data_tool=latest_numbers&series_id=LASST26000003
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United States Department of Labor. (2010). Bureau of labor statistics: Texas. Retrieved August

20, 2010 from http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?

data_tool=latest_numbers&series_id=LASST48000003

UPI. (2010). Obama's speech on importance of education. Retrieved August 20, 2010 from

http://www.upi.com/Top_News/2009/09/08/Obamas-speech-on-importance-of-

education/UPI-21501252429738/

Whitehouse. (2010). Did 'cash-for-clunkers' work as intended? Retrieved August 20 from

http://www.whitehouse.gov/blog/2010/04/05/did-cash-clunkers-work-intended

Wong, Z. (2007). Human factors in project management: Concepts, tools, and techniques for inspiring

teamwork and motivation. San Francisco, CA: John Wiley & Sons.