by Leo Soderman

Created on: August 25, 2009

In one month, the Cash For Clunkers program generated sales of 625,000 new cars, a level of sales that has not been seen for two years. That's a phenomenal jump, but is it as successful as it sounds? And were there other options?

The goal of the Cash for Clunkers program was two-pronged: Jump-start auto sales for the ailing auto industry, while getting poor mileage vehicles off the road. By giving incentives for turning in vehicles that have lower mileage ratings, consumers would be able to start reducing the amount of oil needed each year for conversion to fuel. It also helps reduce emissions, which contribute to greenhouse gases and global warming.

By initial estimates, this has been a short term boon for the auto industry. One estimate from the folks at GM is that 33% of the cars sold during the program were from customers who came in for the Cash For Clunkers program, but whose cars did not qualify. The sale still took place, without the program's incentive.

But the concern is that now that dealer's inventories have been depleted, will the auto industry ramp back up too quickly, or sit back and wait to see if there is any fallback from these sales levels. The sales numbers from the last month look great, but are likely not sustainable in the long run. And while the new sales will help stabilize the auto industry, until unemployment rates and housing sales recover, consumers may opt to wait a little longer to make that new car purchase. Nevertheless, in terms of giving the auto industry a boost, it certainly accomplished the task.

But was there another way?

Yes, if you're willing to look back about a year. That was when Congress passed the initial $14 million bailout package. Instead of giving the money directly to the automakers, that would have been the time for a successful Cash for Clunkers program. Give the rebate, the incentive to the consumers. If $3 billion generated roughly 635,000 new car sales, $14 billion would have generated in the realm of 3 million new car sales - a hefty number for an ailing industry. And the money would have been to consumers, as they purchased cars. If they didn't buy a car, no rebate. Most importantly, it would allow the auto industry to do what it is supposed to do: build cars.

Another option would have been to offer that $14 billion in the form of tax rebates for purchasers of domestic cars. Again, the money is going back to the consumers, and the auto manufacturer that produces the best cards will benefit the most. In either of the options proffered, the money that was just handed to the auto makers would instead go back into the hands of taxpayers.

Of course, these aren't the only possibilities. But while some might argue that no money should be spent on the auto industry, very few would argue with giving money back to taxpayers to get them out of gas guzzlers and into more efficient, cleaner vehicles.

In the end, the Cash For Clunkers program is not going to single-handedly save the economy - it wasn't intended to. But it did give a lift to a severely ailing auto industry, keeping it from heading into a deeper hole than it was already in.

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