WASHINGTON — The popular “cash for clunkers” program may be a well- timed shot of adrenaline for the economy, but it’s not a prescription for a lasting recovery.
The federal rebates of up to $4,500 to drivers who trade in a gas guzzler for a more fuel-efficient vehicle are steering cash to car dealers, giving a boost to troubled automakers and much-needed sales taxes for cities.
All this will help the economy grow faster in the second half of the year than previously forecast. Yet the rebates also will steal economic growth from the future: They make car sales happen now that would have been made later anyway.
Cash for clunkers, soon to be a $3 billion program after the Senate agreed to extend it with an extra $2 billion, comes at a critical time for the economy. Recent data suggest the country is finally emerging from the worst recession since World War II.
And clunker cash delivers more than just an isolated jolt to the auto industry. More business for auto dealers, manufacturers and parts suppliers could mean fewer layoffs or even some hiring, meaning more people are spending money throughout the economy.
But the rapid success of “cash for clunkers” — it’s credited with making July the best month for car sales in nearly a year — does not mean the program should be expanded to, say, $10 billion.
There are only so many people looking to trade in pickups for hybrid sedans. And there are only so many people who can afford to.
Even if clunker cash helps the economy expand at a 4 percent annual rate from July through December — the high end of the most optimistic forecasts — underlying problems will make the pace hard to sustain.
Mark Zandi, chief economist at Moody’s , is among those predicting the cash-for-clunkers program will help boost consumer spending in the second half of this year. But he predicts spending will flatten out as the benefit fades.
Some analysts worry that people who used clunker cash to buy a new car or truck may cut back on other things, like clothes and home furnishings. And history suggests auto promotions gin up sales only temporarily.
“Once these clunker rebates expire, it is over,” said economist Richard Yamarone of Argus Research. “Consumers are not going to keep buying cars. It is a temporary one-time gimmick, not a long-lasting tonic for the recovery.”
