Abstract: "Cash-for-Clunkers" programs are credited with increasing automobile sales only temporarily. We analyze the Spanish automobile market during the 1990s to argue that such policy interventions may induce permanent qualitative effects by shifting the demand towards fuel efficient vehicles, thus changing the composition of the automobile fleet in the long run. Between 1994 and 2000 the market share of diesel automobiles increased from 27% to 54% after the Spanish government sponsored two scrappage programs. The increase in sales of diesel vehicles is more important across most popular market segments. As sales of diesels increase they become closer substitutes to gasoline models.
