Clunkers see $2bn extension

The US Senate voted yesterday a $2bn extension to the cash-for-clunkers program, which has been a hit for many Americans. Such a big hit that its previous allocation of $1bn was almost gone in a matter of days.  With this new funding for the program, there are about 400,000 new vehicle sales that could be subsidised, allowing automakers to reconsider their production plans for the rest of the year.

Ford Motor Co., General Motors Co. and Chrysler Group LLC are weighing whether to increase output of vehicles beyond current plans, which would increase workers’ hours and possibly add some jobs at their plants and those of hundreds of suppliers.

More from the WSJ report.

These are good things, but we have to be forewarned of potential reduced sales as future purchases of these vehicles are being done today.  Also coming with that are potentially high, but unsustainable earnings for the quarter.  Now that inventories are getting leaner, significant increases in its inventories could yet again leave these automakers with a big number of cars just sitting by the dealerships.

So I wouldn’t completely say that the program is a complete bad.  It’s simply a matter of looking with a short- or long-term horizon.  While it is true that the program, along with its extension is going to cause a spike in auto sales, improving their situation in the short run, these automakers would also have to ensure that strong sales don’t end when the program does.

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