Clunkers.....good or bad idea.....

[TXduckdog]

Remember "cash for clunkers," the program that subsidized Americans to the tune of nearly $3 billion to buy a new car and destroy an old one? Transportation Secretary Ray LaHood declared in August that, "This is the one stimulus program that seems to be working better than just about any other program."

If that's true, heaven help the other programs. Last week U.S. automakers reported that new car sales for September, the first month since the clunker program expired, sank by 25% from a year earlier. Sales at GM and Chrysler fell by 45% and 42%, respectively. Ford was down about 5%. Some 700,000 cars were sold in the summer under the program as buyers received up to $4,500 to buy a new car they would probably have purchased anyway, so all the program seems to have done is steal those sales from the future. Exactly as critics predicted.

Cash for clunkers had two objectives: help the environment by increasing fuel efficiency, and boost car sales to help Detroit and the economy. It achieved neither. According to Hudson Institute economist Irwin Stelzer, at best "the reduction in gasoline consumption will cut our oil consumption by 0.2 percent per year, or less than a single day's gasoline use." Burton Abrams and George Parsons of the University of Delaware added up the total benefits from reduced gas consumption, environmental improvements and the benefit to car buyers and companies, minus the overall cost of cash for clunkers, and found a net cost of roughly $2,000 per vehicle. Rather than stimulating the economy, the program made the nation as a whole $1.4 billion poorer.

The basic fallacy of cash for clunkers is that you can somehow create wealth by destroying existing assets that are still productive, in this case cars that still work. Under the program, auto dealers were required to destroy the car engines of trade-ins with a sodium silicate solution, then smash them and send them to the junk yard. As the journalist Henry Hazlitt wrote in his classic, "Economics in One Lesson," you can't raise living standards by breaking windows so some people can get jobs repairing them.

In the category of all-time dumb ideas, cash for clunkers rivals the New Deal brainstorm to slaughter pigs to raise pork prices. The people who really belong in the junk yard are the wizards in Washington who peddled this economic malarkey.

[zeus3925]

fyi--
http://www.freep.com/article/2009100...ncrease-in-Oct.

[Gerry Clinchy]

Zeus, basically the article seems to say that CFC reduced inventory sufficiently that the mfrs didn't have to offer incentives in Sept. to reduce their inventory ... as would normally happen in Sept. due to the model-year change that is usually associated with Sept. Essentially, the CFC effect moved those Sept. sales into August.

Then the mfrs put people back to work ... and will again increase inventory; unless there were enough buyers left who still want to take advantage of incentives that will come in the last 3 mos. of the year.

That said, it did provide a short-term boost to the economy. Whether that will prove to have been beneficial as part of a longer-term strategy remains to be seen.

[zeus3925]

After CFC there wasn't anything on the lots to sell. There was nothing to draw in customers. In the meantime the manufacturers can't immediately respond because the parts supply train now extends to China. It takes 3-4 weeks to get the parts supply on line. Normally there would be a good supply of last year's models on the lots. This year before CFC the supply was huge. Unless the old models were cleared out it made no sense to make more.

[TN_LAB]

What it did do was make me want to run out and buy a clunker.

I needed (OK...I wanted one) a 4x4 pickup truck. I spent the past couple of months looking pretty hard and finally found one a couple weeks ago.

Seems a fair amount of perfectly operable "clunkers" were removed from the roads and that stinks when you are in the market to buy a "clunker."

[Franco]

If that's true, heaven help the other programs. Last week U.S. automakers reported that new car sales for September, the first month since the clunker program expired, sank by 25% from a year earlier. Sales at GM and Chrysler fell by 45% and 42%, respectively. Ford was down about 5%. Some 700,000 cars were sold in the summer under the program as buyers received up to $4,500 to buy a new car they would probably have purchased anyway, so all the program seems to have done is steal those sales from the future. Exactly as critics predicted.

.

That's is what I said here at the time. The consumer is now trained to wait on Gov assistence before buying!

Except for Chrysler, new car dealers had lots of inventory after CFC. Ford had to come out with 10k incentives on 09 models just to get warm bodies back to showrooms and trying to compete with Gooberment Motors/tax payers. Now, Gooberment Motors has followed Ford's lead. This means Ford will lose money and tax payers will lose even more at GM! Chrysler shut down production during thier bankrupcy and are now just getting cars/trucks to showrooms. But, new models which are the life blood of any mfg are non-exisitent at Chrysler.

Basically what we have is gooberment encouraging bad business practices. But then again, what would our gooberment know about good business practices?

[zeus3925]

Except for Chrysler, new car dealers had lots of inventory after CFC. Ford had to come out with 10k incentives on 09 models just to get warm bodies back to showrooms and trying to compete with Gooberment Motors/tax payers.

Well you didn't see the sales lots here. They were picked clean and dealers were asking top dollar for demos. In the last 10 days cars have been arriving, but before that there was nothing to see but blacktop. Reports from relatives in Michigan report the same thing.

[Franco]

Well you didn't see the sales lots here. They were picked clean and dealers were asking top dollar for demos. In the last 10 days cars have been arriving, but before that there was nothing to see but blacktop. Reports from relatives in Michigan report the same thing.

And , that is why Ford and GM have a huge stockpile of 09's to get rid of?
GM is so desperate to move iron that they are letting folks buy their product and returning it if they don't like it at tax payers expense! Plus, they like Ford have huge factory rebates just to get folks into the showrooms.

I doubt seriously that the Michigan dealers sold more units than other states. Not with thier lousey economy. That is unless those Michigan dealers began with very low inventory to begin with because not many people were buying before CFC.

[Blackstone]

And , that is why Ford and GM have a huge stockpile of 09's to get rid of?
GM is so desperate to move iron that they are letting folks buy their product and returning it if they don't like it at tax payers expense! Plus, they like Ford have huge factory rebates just to get folks into the showrooms.

I doubt seriously that the Michigan dealers sold more units than other states. Not with thier lousey economy. That is unless those Michigan dealers began with very low inventory to begin with because not many people were buying before CFC.

Actually vehicle inventories for Ford & GM are significantly lower than at the same time last year, and remain at very low levels. At the end of September, GM’s inventory was about 420,000 vehicles in stock nation wide. That’s down about 40% from last year, and down about 10% compared with August ‘09.

As far as incentives, GM, Ford & Chrysler have been able to reduce incentive amounts by 20 – 25 percent (depending on model) because of the low number of vehicles in stock (supply & demand). As a result, car and truck prices from all 3 manufacturers have actually increased by about $2,000 on average from the same time last year. Of course this means more profit for the auto companies.

GM is so desperate to move iron that they are letting folks buy their product and returning it if they don't like it at tax payers expense!

I know you refuse to believe it, but GM really does have enough faith in the cars and trucks they're producing to make this offer. Clearly, the offer is intended to lure potential buyer into trying a GM vehicle. However, GM believes that once you try the vehicle, and compare them to the competition, they will decide it's the better vehicle, and not return it. According you Edmonds, it has already had the effect of brining in more shoppers.

Of course, there are going to be some people that have no intention of buying, just going on a free 4,000 mile joy ride. However, considering what it takes to qualify for a car loan now, most of the low-life types that would do that will be eliminated. The estimate is that less than 1% will return vehicles they buy. Even at that, GM will lose little, if anything at all, reselling a vehicle with 4,000 miles on it.

[Franco]

Actually vehicle inventories for Ford & GM are significantly lower than at the same time last year, and remain at very low levels. At the end of September, GM’s inventory was about 420,000 vehicles in stock nation wide. That’s down about 40% from last year, and down about 10% compared with August ‘09.

As far as incentives, GM, Ford & Chrysler have been able to reduce incentive amounts by 20 – 25 percent (depending on model) because of the low number of vehicles in stock (supply & demand). As a result, car and truck prices from all 3 manufacturers have actually increased by about $2,000 on average from the same time last year. Of course this means more profit for the auto companies.



I know you refuse to believe it, but GM really does have enough faith in the cars and trucks they're producing to make this offer. Clearly, the offer is intended to lure potential buyer into trying a GM vehicle. However, GM believes that once you try the vehicle, and compare them to the competition, they will decide it's the better vehicle, and not return it. According you Edmonds, it has already had the effect of brining in more shoppers.

Of course, there are going to be some people that have no intention of buying, just going on a free 4,000 mile joy ride. However, considering what it takes to qualify for a car loan now, most of the low-life types that would do that will be eliminated. The estimate is that less than 1% will return vehicles they buy. Even at that, GM will lose little, if anything at all, reselling a vehicle with 4,000 miles on it.

Yes, less inventory but NOT because of CFC. They've been buildling less vehicles because demand is lower.

Estimated 1% is GM's estimate. Actual returns could be much higher, no one knows yet what it will. Just like GM's estimate that the will pay the tax payer back by 2011, another uncertainty. Lets don't forget the GM is gambling with tax payer money on this program which I view as a big disadvatantage to Ford since they are trying to do it the old fashioned way. That way being not government owned.