Our organizations represent small businesses across the United States that derive their revenue primarily from post-warranty vehicles. We service, repair, distribute and manufacture parts for these vehicles. Our members have been severely impacted by the COVID-19 pandemic. Although some of our businesses have participated in economic stimulus programs, the funds from these programs fall short of replacing the revenue they have lost during the pandemic.
We are writing you today out of concern for recent discussions regarding establishing a Cash for Clunkers type program, in the fourth stimulus initiative, similar to the Consumer Assistance to Recycle and Save (CARS) program implemented by the Obama Administration in the summer of 2009 as a cure for the recession.
Both the Government Accountability Office (GAO) and the Brookings Institution along with other respected organizations raised questions about the success of the Cash for Clunkers program in stimulating the economy and reducing emissions. What we do know is that this $3 billion program removed approximately 700,000 vehicles from independent automotive repair shops. These vehicles were destroyed by the federal government after taxpayer dollars were spent up to $4500 per vehicle. The program was beneficial to auto manufacturers rather than acting as a stimulus to the entire automotive industry. As a result, the aftermarket sector was severely impacted with less vehicle service, fewer repairs and a direct impact on aftermarket distributors and manufacturers.
It is unclear whether the new vehicles would have been purchased, at some point, without the federal subsidy. Some automakers did benefit immediately with dramatic increases in stock value.
The Brookings Institution analysis noted that Cash for Clunkers ignores the impact of the federal government removing post-warranty vehicles from the marketplace.
The assessment thus far has focused on the degree to which the CARS program provided temporary stimulus by incentivizing households to purchase a new vehicle. This ignores the economic impact stemming from the program's requirement that the trade-in vehicle be destroyed. Incentivizing the premature destruction of used vehicles represents a loss of capital stock and thus a reduction in economic wealth.
In addition to effects on the industry, there are also consumer issues to be considered. This stimulus only helps the consumer if they were going to buy a new car in the near future in which case the program provides little benefit and an unnecessary use of taxpayer's dollars. If they were not, this incentive could encourage the consumer to take on additional debt that they would not have otherwise. In an effort to take advantage of a stimulus program, consumers may purchase a new car, when without the cash incentive, they may have chosen a pre-owned vehicle that would be appropriate for their needs.
GAO stressed the importance of input from stakeholders in its report to Congress. The 2009 Cash for Clunkers initiative excluded the economic impact of the program on the automotive aftermarket.
Finally, given the number of stakeholders that are financially affected by the auto industry, it would be important to collect and consider information on how a future program would affect these stakeholders and take mitigating actions, as appropriate.
We urge you to support America's small businesses and OPPOSE any new Cash for Clunkers vehicle retirement program in the next COVID-19 stimulus package. COVID-19 has had a devastating effect on small businesses.
As an important sector of the U.S. economy, we cannot survive any further negative effects.