Free cash: An idea that works

The government’s "Cash for Clunkers" program, often described as an experiment, proved one thing: The American people are no fools. Offer them free money — $3,500 to $4,500 to go out and buy a car — and they’ll take it.

The Obama administration plans to end the program Monday night, but it would have ended soon anyway because (a) the $3 billion set aside for it will soon run out and (b) dealers are dropping out of the program because the government hasn’t paid them.

Reimbursing the dealers was the one flaw in the plan, and the Department of Transportation wasn’t necessarily to blame. The program was hastily thrown together and then just as quickly extended as Congress headed out of town. Overcome by the novel sight of car buyers swarming their showrooms, many dealers jumped the gun. The program was behind before it even started.

Cash for Clunkers wasn’t the first time the lawmakers dumped a program in an agency’s lap and said, metaphorically, "Here. Go make this work. ‘Bye.’"

DOT may be to blame for the intricacy — 13 pages — of the paperwork. But Congress should have foreseen the demand — Free money? Go figure — and given the agency time to ramp up to handle a flood of requests for reimbursements. As it was, government computers were overwhelmed by the demand.

Dealerships work close to the margins on their cash flows and can’t be running up debts of $3,500 to $4,500 for each new car they sell. Nervous dealers worried that they would be on the hook for deals they made but were not paid for before the $3 billion runs out.

Transportation Secretary Ray LaHood says not to worry: Everybody will get paid and DOT will have 1,100 workers on hand to process the requests 24/7 by the weekend.

If you look at Cash for Clunkers purely in terms of auto sales rather than as a crazy economic proposition where all the taxpayers help a few taxpayers buy new cars, it really works. Through Wednesday, $1.81 billion had generated 435,000 vehicle sales. While Toyota seemed to be the biggest beneficiary, GM announced plans to recall over 1,000 idled workers and build 60,000 more cars this year than it had planned, something no one would have predicted this spring.

So Uncle Sam’s brief experiment in car sales is over. And Cash for Clunkers will come up whenever people ask, "Remember that crazy summer of 2009? When they gave people money to buy cars?"