If you want to see a real-time lesson in demand-side economics with some clever branding thrown in, check out the too successful Cash for Clunkers program. In essence, the program is a tax-rebate designed to create demand for a specific type of automobile. Tax incentives to purchase certain types of vehicles are nothing new: if you own a business that involves transporting people or products, you have likely encountered the byzantine tax rules that encourage certain purchasing decisions and discourage others. (Ironically, some of those commercial-vehicle-related tax incentives encourage one to purchase less fuel efficient commercial vehicles than necessary.)
The Cash for Clunkers program is designed to generate demand for automobiles, a product category that already has pent-up demand as consumers are sitting on cash at record levels. (Americans, by nature or nurture, typically like to spend and not save.) As people with cash who have the urge to purchase a more fuel efficient car have been waiting around for the program to begin, it’s not surprising that the market is treating this like tickets to a Taylor Swift concert.
And the name — Cash for Clunkers — wow! It sounds good enough to be a local car dealer’s slogan. Unlike the typical government branding lameness (TARP, for instance), this program sounds like something you’d hear in an infomercial hosted by the late Billy Mays or maybe Johnny Carson as Art Fern.
Of course, we’ll also be learning another lesson in economics soon when all those clunkers get dumped into the used car market.