Clunker Error

January 05, 2010

An article today in the New York Times discussed how the recession combined better availability of transportation led to an overall reduction in the number of vehicles in the United States last year. In other words, more cars were scrapped than were purchased, leading to a net loss.

However, and I hate to be a stickler about this, the article made the following, incorrect claim:

President Barack Obama's "cash for clunkers" program, which last summer gave consumers a rebate of up to $4,500 for trading in older cars and light trucks, led to the scrapping of more than 700,000 vehicles. But since the incentive was only available to consumers who bought new fuel-sipping vehicles, it did not affect the ratio of scrapped vehicles to new sales.

Did you catch the mistake?

Cash For Clunkers clearly can effect the ratio of purchased to scrapped vehicles. It's easy to see with an example. Let's say that, without the cash for clunkers program, there were 5 new vehicles purchased and 7 vehicles scrapped. The ratio of scrapped to purchased is 7:5 or 1.4:1 . Now, let's assume that there were 10 vehicles purchased and scrapped with the cash for clunkers program. With cash for clunkers, there were 7+10=17 vehicles scrapped, and 5+10=15 vehicles purchased. Thus, the new ratio is 17:15 or 1.133:1 .

Clearly, cash for clunkers can effect the ratio. The thing that it can't effect is DIFFERENCE between scrapped and purchased, which I guess was the point of the article.