Auto overjoy

So the cash for clunkers program has been very successful, judging it just by the first third of the funding that was allocated to it by the US government and has now been paid for the trade-ins of as many as 245,000 more fuel-efficient vehicles.   Now the dealers are hoping that the automakers would step up their production to meet this spike in demand for the vehicles.

With the “cash for clunkers” program generating more than 245,000 vehicle sales in two weeks, car dealers intensified pressure on auto makers Monday to ramp up production.
Dealers around the country scrambled to find fuel-efficient vehicles that qualify for the program to fill their lots. They also voiced concerns that the extra $2 billion Congress approved for the plan last week won’t last through September.

An excerpt from the WSJ report:

With the “cash for clunkers” program generating more than 245,000 vehicle sales in two weeks, car dealers intensified pressure on auto makers Monday to ramp up production.

Dealers around the country scrambled to find fuel-efficient vehicles that qualify for the program to fill their lots. They also voiced concerns that the extra $2 billion Congress approved for the plan last week won’t last through September.

More here.

Sound so good, doesn’t it? Not so fast.

I think the automakers and dealers are both in a sudden celebratory mood. Maybe quite necessarily so.  However, while this program is good for the short-term, this could simply provide the one big boost in GDP/retail/durable goods numbers for the third quarter.  And when the $2 billion is all gone before the third quarter ends, that’s when we will see the necessary “correction”. Things aren’t as good as we expected them to be.  It was just a bump on the road. Just like how the stimulus from last year and this year have provided a false imagery of an economic recovery.  People are misled to believe that these one-time tactics are there to stay.

So maybe the US will see its numbers grow big enough to surpass expectations, but I betcha it won’t stay there and continue. It’s just a momentary overjoy.

A related article I read over the weekend came from NYT discussing the difficulty of seeing the benefits of these supposedly more efficient vehicles. It is similarly arguing that there’s not much to be excited about since the CFC program is simply one that advances purchases of vehicles that are expected to be made sooner or later anyway. (And let me add, it costs the government more – where later purchases would probably be financed solely by consumer pockets.)

From the NYT:

So what will sales be like in the coming months, now that many consumers have moved up their plans to buy a new vehicle? There were extra sales in July and the same will be true in August. And the number of sales under the program will be measured precisely — the Transportation Department said 245,384 vehicles had been sold by Friday morning, with rebates totaling $1.03 billion.

But the Transportation Department will not be able to measure how many shoppers would have purchased a car this fall — when the 2010 models go on sale — or in the winter or spring.

That report from the NYT here.

Apparently, I don’t believe this was the best way to solve the problem of a much-needed economic boost.

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