White House fights back on Cash for Clunkers

Obama administration goes to battle with Edmunds.com on Cash for Clunkers analysis, saying the program contributed heavily to last quarter's economic expansion.

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By David Goldman, CNNMoney.com staff writer

What I got with Cash for Clunkers
Take a peek at the heaps (no offense) these 6 turned in -- or tried to turn in -- to get their Cash for Clunkers deal.
An eyeblink glance at the economy
The economy has grown for five straight quarters, but there are signs that the recovery is still fragile.

NEW YORK (CNNMoney.com) -- The Obama administration on Thursday lashed out at a prominent critic of its Cash for Clunkers program, arguing that the popular trade-in initiative helped give the auto industry and the economy a much needed boost in the past few months.

In a blog post on whitehouse.gov, the administration argued that a report on Clunkers by automotive Web site Edmunds.com "doesn't withstand even basic scrutiny" and is based on "implausible assumptions."

On Wednesday, Edmunds.com released a study that argued Cash for Clunkers did not have a great impact on the auto industry. The report said that 690,000 new vehicles were sold under the program last summer, but that only 125,000 of them would not have been sold without the Clunkers rebates.

As a result, the report said, the administration's economic claims for the program "have been rendered quite weak."

The Clunkers program gave car buyers rebates of up to $4,500 if they traded in less fuel-efficient vehicles for new vehicles that met certain fuel economy requirements. A total of $3 billion was allotted for those rebates.

The Edmunds report also said that taxpayers shelled out an average of $24,000 per car sold as a result of the program.

But the White House fired back, saying Thursday's Commerce Department report that showed auto sales contributed 1.7 percentage points to the economy's 3.5% growth rate in the third quarter is proof that Cash for Clunkers had a meaningful impact on both auto sales and the broad economy.

"Edmunds.com has released a faulty analysis," the blog post said. "This is the latest of several critical analyses of the Cash for Clunkers program from Edmunds.com, which appear designed to grab headlines and get coverage on cable TV."

The administration argued that Edmunds' conclusions were incorrect because the study assumes that the market for cars that didn't qualify for Clunkers was unaffected by the program.

"In other words, all the other cars were being sold on Mars," said the administration.

The administration's blog post argued that Clunkers helped to lower auto prices on the rest of the vehicle market as well, a fact the administration said Edmunds ignored. The White House also said that people were drawn into dealerships because of the program and ended up purchasing cars even if their trade-in didn't qualify for the program.

Cash for Clunkers will have a long-term impact on the overall economy, since automakers increased their production through the end of the year to meet demand created by the program, the administration said.

Finally, the administration said the Edmunds' report flies in the face of independent analyses, and the administration's Council of Economic Advisers. The blog urged readers to "put on your space suit and compare the two approaches yourself."

Edmunds stands by its report: In response, Edmunds.com said Thursday that its figures were correct, and that the growth in GDP had more to do with naturally recovering auto sales and not with incentive programs.

The company also said that there was no hard evidence of consumers buying cars after discovering they didn't qualify for the rebate.

"It does, after all, seem a bit odd that masses of consumers would elect to buy a vehicle because of a program for which they don't qualify -- doubly so when you add in the fact that prices shot up during Cash for Clunkers, creating a disincentive to buy," Edmunds said in a statement.

In the end, Edmunds said the report actually shows that there is some good news about the auto industry -- the recovering economy is helping boost auto sales even without the help of Clunkers.

"With all respect to the White House, Edmunds.com thinks that instead of shooting the messenger, government officials should take heart from the core message of the analysis: the fundamentals of the auto marketplace are improving faster than the current sales numbers suggest." To top of page

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