Cash for Clunkers -- It Worked! ~ Steve Blitz Morning Notes
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Wednesday, October 14, 2009

Cash for Clunkers -- It Worked!

The "cash-for-clunkers" program has been the subject of more negative comments and bad puns than anything an administration has put out for a long long time. Most of the comments have focused on the program's inevitable failure to permanently raise the level of spending for autos and/or anything else. By extension, the reaction is that Obamanomics is a complete bust. Political rage absent of thought to other possibilities is not the best way to go through life, unless your goal is to get crankier as you get older. The chart below plots out auto industry inventories, sales, and the inventory/sales ratio.The cash for clunkers progam moved the auto industry out of depression and into recession at an extraordinarily rapid pace. This saved a lot of investors, public and private, a lot of money,

We can see now that the program was never really intended to be a permanent boost to sales, I think even Larry Summers and Ben Bernanke knew that. The cash for clunkers trade was meant to alleviate an extraordinary overhang of unsold cars under which an entire industry was about to collapse. Normal recession metrics for sales, inventories, and production are now in play and they will be for some time but the government accomplished what it set out to do -- saving an industry and giving it the time to do what's necessary to save itself short-term and for the long haul. It will be a while before we know whether the auto industry finally gets it right, but at least they now have the time to figure it out.

3 comments:

  1. The inventory didn't magically disappear, the government simply took our tax dollars to pay to destroy working vehicles. So, we the people spent about $3 billion to make that inventory spike drop and ship more steel to china. Now inventory is down. Yippee! So, I guess now you'd say that's great, car manufacturers can make more cars! Well, then what? Overall sales for the long term are still falling steadily, and so if we rebuild inventory again we will be at the same place we started from.

    All that happened was the government took money from the general population and gave it to a select group. It may have made certain people feel better for a while, but it is in no way sustainable or helpful long term. I see no success in that.

    I find this link on the subject particularly amusing in a depressing sort of way, you should check it out: http://www.ar15.com/forums/topic.html?b=1&f=5&t=941421

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  2. thank you for taking the time to comment. your points are well taken but i think my writing may have made my point unclear. the program's intent was to clear out a depression level of inventory and get it down to a mere recessionary level. that is an overhang that the car companies can deal with financially while waiting for the economy to turn around. so this is not about renewing production or getting better cars on the road. it was open keeping the car companies from shutting down and taking their suppliers with them. you are right, the money went to a select group -- the shareholders (government, unions, pension funds, private investors) and the employees of these firms and their suppliers. imagine to cost to the state&local governments as well as the u.s. government if all these people were thrown out of work at once. a lot more than the program cost.

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  3. Cash for clunkers may have been a minimal benefit for the auto industry. It also destroyed 690,000+ cars. That destruction cost car repair shops and charities that rely on the proceeds from car donation a lot of money.

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