Cash for Clunkers is a bad idea in 2020

Industry

It’s the debate that will not die. As long as the COVID-19 crisis is weighing down the U.S. economy, there will be calls for a Cash for Clunkers redux. It’s an intriguingly simple premise: Take an ailing key industry, boost demand, feel the increased activity ripple through your economy.

Cash for Clunkers worked once, didn’t it? Why not just try it again? Well, in late June, one of the most automotive-centric countries, Germany, passed an unprecedented stimulus package to help its economy deal with the fallout of the coronavirus crisis. Notably absent: a revival of 2009’s Cash for Clunkers program. Also notably absent: major dissent about its exclusion, as the downsides of Cash for Clunkers initiatives have become more evident and pressing in the last decade. With regard to the U.S., allow me to sketch out three major arguments against a Cash for Clunkers redux.

1. Mobility is changing and so is the value of cars.

Some 80 percent of Americans live in urban environments. Across the country, cities are reaching the limits of their capacity for individual transport. Parking space is limited and expensive, increasing the running costs of owning a car. At the same time, shared mobility and ride-hailing, electric micromobility and an increase in work-from-anywhere models are slowly eliminating the need for individual vehicle ownership.

For a metropolis suffering from traffic congestion and spatial limitations, a car fleet stimulus is a fatal signal.

It also is an investment into an aging market. The average new-car or -truck buyer has grown older over the past decade. According to research published by the Federal Reserve, they are now around 53 years old and are not repeat buyers. For people younger than 29, on the other hand, vehicle ownership is in decline, slowed by ownership costs, sustainability trends and changed mobility needs. For this demographic, subscription models as tested by Porsche and Volvo, e-mobility and ride-sharing provide answers. A Cash for Clunkers package does not.

2. Car dealerships need an update, not a relevancy prop.

Make no mistake: A Cash for Clunkers package is a stimulus for the whole automotive industry — including those parts in dire need of renovation. As the main means of stimulus distribution, auto dealerships would play an essential part in any Cash for Clunkers package. This, however, would only slow down the long-overdue disruption of the market. The stationary dealership as we know it is a relic of past market inefficiencies. New direct distribution models, an increase in online research, the growing importance of prominent showrooms compared with vast dealership spaces — they all call for a market revolution. We witnessed the forces of change at work in other markets, from media to fashion to groceries. Downsizing, consolidation, cooperation and integration of offline and online modules are necessary to survival. It is time for the automotive market to follow suit.

3. Government intervention should build a sustainable future, not prolong a successful past.

A Cash for Clunkers-less stimulus package is a bold statement. Its message: We choose to invest into future technologies and industries rather than traditional go-to champions. We want to emerge from this crisis stronger and revitalized, not back at our status quo. However, even if you were to focus any stimulus efforts on the automotive and transport sector, there are more sustainable and future-oriented measures than a Cash for Clunkers package.

In 2019, the International Council on Clean Transportation reported that the expected increase in electric vehicle adoption in the U.S. will require an investment of more than $2.2 billion in charging infrastructure by 2025. Additionally, investments in urban transit systems help build a sustainable ecosystem, taking the pressure off city streets and neighborhoods. When dealing with public space, investments into strictly private consumer solutions are counterproductive.

Germany made a good and important decision for the future. It may serve as a model to resolve the Cash for Clunkers debate in the U.S.

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