The Cash for Clunkers Program

This fact sheet summarizes how the Car Allowance Rebate System (CARS), better known as the "Cash for Clunkers" Program, was treated in the calculation of the Consumer Price Index (CPI).

This program, which provided government vouchers of $3,500 to $4,500 to dealers for motorists who trade in less fuel-efficient vehicles for more fuel-efficient ones, was signed into law June 24, 2009, and became effective July 27, 2009. The program was extended on August 5, and ended on August 25.

Complete details on the program, including eligibility requirements, can be found at the National Highway Traffic Safety Administration website. Statistics on the program, including the number of eligible transactions and the potential effect on the economy, can be found at www.cars.gov/files/official-information/August26PR.pdf.

The BLS did not change its estimation method to incorporate the cash for clunkers program. The standard method for estimating the transaction price on sampled new vehicles calls for collecting the retail price of the vehicle and its selected options, and asking the dealer for the average discount on that sampled model over the previous 30 days. The 30 day average is used because sales volumes per specific model per month are typically low at individual dealerships.

To the degree that the total dealer discount to the consumer is influenced by discounts or incentives to the dealer from any source, including the cash for clunkers program, it would be reflected in the CPI. The average discount for sampled vehicles would reflect both cash for clunker transactions as well as transactions not eligible for the program.

Because the average discount is based on sales for the sampled model over the previous 30 days, any effect of the "Cash for Clunkers" program on the CPI will only last through September.

 

Last Modified Date: September 29, 2009