Cash For Clunkers Pushes August Sales And Stirs Debate

Posted by: David Kiley on August 28, 2009

Helped by Cash for Clunkers, which ended Monday, the annualized selling rate for the auto industry in August is expected to be about 15.5 million, according to Wall Street firm Goldman Sachs.
That would be a 16% improvement year over year, and nearly a 40% increase from July.

Goldman fully expects a “pay back effect” in September following the program. The firm also expects the monthly selling rate to remain above 10 million for the rest of the year, with a final sales tally of about 10.5 million, with a tally of 12 million next year. Some other analysts have pegged next year’s selling rate at 12.5 million to 13 million.

Consumer spending edged up 0.2 percent in July with help from the popular Cash for Clunkers program, but household incomes, the fuel for future spending increases, were flat.

Despite the big bump, including for General Motors, Goldman says it expects the automaker, just coming out of bankruptcy, to see a 16% drop in sales, compared with August of last year in part because of a pretty robust selling month last summer for the automaker. Ford is expected to see a 37% increase in sales for August, while Chrysler sales should be up about 5% for the month.

There has been much analyzing, debating and arguing over whether Cash for Clunkers was a good idea or good policy.

One stat I saw contrasted Clunkers with the German scrappage program, pointing out that we bumped up sales by maybe 3%, while Germany saw much bigger sales gains.

One of the flaws in comparing the program too closely with that of Germany is that that Germans have had a far greater personal savings rate than the U.S., and that country has not had nearly the housing bubble we have had, crushing home values and setting off a flurry of foreclosures in the U.S.

That is why Germany, whose citizens have been much wiser in terms of savings and personal debt levels, is coming out of the global downturn faster than the U.S. When the government kicked off its “clunkers” program, citizens were not nearly as strapped and savings poor to buy a new car.

When assessing Clunkers, you can look at some cold hard numbers. As colleague David Welch points out in his blog post, J.D. Power and Associates reckons that 70% of the sales made within the Clunkers program “may” have happened before the end of the year anyway.

Given the growing deficit, was the $3 billion spent wisely? Did we just augment or replace incentives that the automakers would have spent anyway? Libertarians really don’t like Clunkers and programs like it.

My position is that “Clunkers” was good policy for a number of reasons.

1. There is no question that the program brought many car buyers off the sidelines, and gave automakers, and dealers, a shot in the arm not only in terms of sales of the vehicles that qualified, but in vehicle sales in general as the program brought lots of new eyeballs to the entire showroom, not just the models that qualified.

2. The $3 billion had direct impact on the economy, keeping people working, increasing production and shift work at auto companies and parts makers. Unlike other pieces of economic stimulus, the money was allocated and went directly into the economy. The money isn’t sitting on a shelf waiting for building permits to make it through local bureaucracies.

3. Clunkers put a spotlight on the whole idea of trading up in fuel economy. Lots of old Explorers got swapped for Ford Focuses and Toyota Corollas. I believe U.S. public policy must move toward engineering a substantial change in transportation. There needs to be more policy that persuades people to choose their vehicles in a smarter way, to leave a smaller carbon imprint. This Clunkers bill was, perhaps, a start of a recurring series of moves that will create a more fertile atmosphere and public discussion about this.

4. Toyota was the biggest beneficiary, topping GM and Ford, when you consider sales of vehicles subsidized. This was no surprise in that GM had lower inventories of qualifying vehicles. Also, there is a fact of life and public perception linking the Toyota brand with fuel economy in a way that GM’s brands have not achieved yet despite solid gains in fuel economy and the fact that Chevy vehicles beat most of their Toyota rivals in fuel economy model for model.

5. Perhaps the undeniable efficiency of Clunkers will influence policy-makers and lawmakers the next time they draft a stimulus package. Economist Martin Feldstein warned us when the stimulus was being debated that it was not targeted nearly enough to consumer spending. His notion, which I agreed with, was that money should have been highly targeted to spending on specific high-impact sectors—cars, major appliances, home improvement.

Reader Comments

Karl

August 28, 2009 1:05 PM

I believe that Goldman Sachs is wrong in their projections. I believe that the 'Cash for Clunkers' program took away many sales that would have resulted in- September, October, November, & December of this year. I also believe that total sales in the USA will be below 10 MILLION units. Perhaps 9.3 million, at best. Thank you.

Squeezebox

August 28, 2009 1:09 PM

Don't forget that Europeans generally tend to hang onto their vehicles longer than Americans do. That's why the sales increase as a percentage was much smaller for the USA than it was for Germany.

Paul Juckniess

August 28, 2009 2:45 PM

Please , Cash for Clunkers was a very poor way to spend 3 Billion. What we need is job creation, not government redistribution of money'es they don't even have. Not one long term job was created... Just a bump in sales that will prolong any of the weak players lives that have not shut their doors.

The government needs to get out of trying to pick winners and losers and supporting people and businesses that make poor choices.

If the government really wants to effect gas consumption and car purchases. Just put a tax on fuel. The market showed very clearly last year what the Price elasticity of demand is for gas.
Then all people can make good choices for them selfs. Last year when fuel were high I saw a lot of people on the bus. Now since the price has gone down we don't see many people on the bus...
BTW Ford just started up another shift making what? Full sized Pick ups.

Government need to stay away and free the markets not only in Car production but health care too!

MAD AS HELL

August 28, 2009 2:47 PM

FEDERAL GOEVRNMENT GIVES BILLIONS TO KEEP AUTO UNION JOBS WHO HELPED PRES.OBAMA GET ELECTED AND DEMOCRATS GIVE 3 BILLLIONS TO THEIR CAMPAIGN CONTRIBUTORS -CAR DEALERS AND OWNERS BUT PEOPLE WHO SELL CARS AND DO SALES AT THE DEALERSHIP..ORDINARY AMERICAN CITIZENS WHO HAVE NO PRES.OBAMA NOR DEMOCRATS TO RELY ON---USED AND NEW CAR SALES PEOPLE ARE MADE TO WORK AS SLAVES..THOUGH SLAVERY HAD BEEN ABOLISHED.. FOR 6O HRS A WEEK WITHOUT SALARY NOR OVERTIME NOR BENEFITS.AND PAYING THEM ONLY COMMISSSION WHICH IS $50 OR $100 PER CAR SALES AS CARS ARE SOLD BELOW INVOICE AND OWNERS SAY NO PROFIT AND AS CAR SALES AR DOWN THEY ONLY SELL 10 OR LESS CARS PER MONTH TAKING HOME GROSS 1200 TO 1500 PER MONTH WHO ARE HAVING FAMILY TO FEED.JUST BECAUSE THE FEDERAL GOVERNMENT AND DEMOCRATS DONT FIND IT USEFUL FOR THEM TO CHANGE THE 1934 LAW WHICH ALLOWS DEALERS/CAR DEALERSHIP OWNERS NOT TO PAY MINIMUM WAGES OR OVERTIME..WHAT KIND OF A COUNTRY IS THIS ..CORRUPT POLITICIANS AND A SOCIALIST COMMUNIST PRESIDENT TAKING UP FOR HIS ELITE FRIENDS BY USING AMERICAN TAX PAYERS MONEY...SLAVERY IS OK AS LONG THEY ARE NOT BLACK ITS OK IF ITS ORDINARY HARDWORKING AMERICAN CITIZENS..WHERES THE CORRUPT MEDIA..WHOSE SIDE ARE THEY....

paulrandall

August 28, 2009 2:57 PM

I had a clunker Honda Passport 11 mpg and traded it in for a Honda Fit 35 mpg. I have never bought a new car before and there was zero chance that I would have bought one this time. I spent about double what I would have spent on a used car and am probably getting at least 10 mpg more with my new car than I would have with any used car I would have bought. I am probably not alone in my car buying habits, I believe that new cars are typically overpriced and just don't provide value for your money. Thanks to Pres Obama the voucher turned me into a new car buyer. No future loss of a sale here.

Rick

August 28, 2009 3:04 PM

The other good things for states that are hurting is, all those people that traded in their clunkers paid state sales tax, plus auto registration fees. I know my state of MA can use that. So I think this program had a bigger impact than people think.

Karl

August 28, 2009 4:03 PM

Keep in mind, Goldman Sachs WAN'T able to predict the- "Collapse of the U.S. economy" back in the summer of 2007, correct? And Goldman sachs didn't accurately predict the stock market crash back in 2007, right? And Goldman Sachs also thought that OIL would hit $150 a barrel by the end of 2008 after it had already hit $147 a barrel earlier in that year, remember? It's interesting that Goldman Sachs was exposed in a '60 Minutes' segment regarding OIL's high price last year, huh? 'Google' this- DID SPECULATION FUEL OIL PRICE SWINGS, and watch that '60 Minutes' segment, if you' like. Thank you.

Bee

August 28, 2009 7:31 PM

Mr. Kiley,
Cash for clunkers is one of the many reparations programs being put into place right now. The program also undermined the cars the rest of us own. You might like it, but it is a double loss for me.

Bee

August 28, 2009 7:32 PM

Mr. Kiley,
Cash for clunkers is one of the many reparations programs being put into place right now. The program also undermined the cars the rest of us own. You might like it, but it is a double loss for me.

Momlee

August 28, 2009 10:12 PM

To be perfectly honest, nobody asked me if I cared to support the clunker program. Congress could care less what I think. Nobody is talking about the fact that consumers took advantage of this program, why not free money, right?? Wrong, all that free money will cost every new car owner. They have to pay taxes on the $4500. They might have been able to sell their car and now have no choice. Nobody was given a heads-up....watch out guys, anytime the government gives free anything, it's a gotcha.

jhenry

August 28, 2009 11:28 PM

Starting July 24 2009 consumers who would like to purchase a new car trading off their old gas guzzlers can use
the Cash For Clunkers program voucher.

Jhenry
Blogger
www.cashforclunkersfacts.info
http://www.cashforclunkersfacts.info

jimwhenry

August 29, 2009 5:39 AM

You don't need a voucher, dealers will apply a credit at purchase

Henry
Blogger
www.cashforclunkersfacts.info
http://www.cashforclunkersfacts.info

Leroy Medford

August 29, 2009 12:54 PM

program stimalated sales but so far automobile dealers are funding the program for the goverment.have not been funded on the first one yet.just got reject on one this morning sent in on july 29th.reson for reject was for insurance,we called and they said oh our mistake everything o.k. will you resend total deal again.bull crap

Paul (Vw)

August 29, 2009 3:39 PM

Forget about the clunkers fiasco...there's another one revolving around Detroit of epic proportions...

http://www.detnews.com/article/20090825/OPINION01/908250316/1008/Editorial--Taxpayers-shouldn-t-pay-for-UAW-s-rich-health-care-benefits

Lou

August 29, 2009 10:33 PM

Bravo to the Obama administration for the courage to do what is in the best interest of the American people and our economy. The same people that are bashing his every move will soon benefit from his administrations actions. The deep hole he was left to dig out of and deal with is no easy assignment to resolve. I'm proud to say I voted for him and I commend him and his staff for doing what they believe will help us recover for near destruction. One thing for sure if they did nothing all Americans and the world economy would have collapsed. That was the path his administration had to avoid. Again, good job Mr. President and your team is proving to be on the right road towards economic recovery.

Commie Stooge

August 31, 2009 6:54 AM

Whether it's the 8K credit for new home buyers; or Cash for Clunkers; both programs are similiar in one respect: politicians love giving away money.
While you can argue about the economic benefits of either program; they benefit a small section of the buying public.
As one who lives in a paid off house; i'm not going to be buying another.
My 1999 Dodge Neon is the very sort of small car that folks should have bought anyway; so I didn't qualify for Clunkers money.
Where is my benefit?
Clunkers benefitted those who bought irresponsible SUVs; not econoboxes.

jimwhenry

September 1, 2009 12:28 AM


Yes, Your vehicle must be less than 25 years old on the trade-in date

Henry
Blogger
www.cashforclunkersfacts.info
http://www.cashforclunkersfacts.info

scooters

September 4, 2009 1:58 AM

No one predicted just how popular the “cash for clunkers” program would become. $3 billion was poured into Clunkers, and the funds were depleted in virtually no time at all as auto buyers went into the car dealer shops in droves trading in their gas-guzzlers for brand-new, fuel-efficient cars.

paul dyer

October 12, 2009 8:48 AM

Paul
you might find interesting
regards
kim

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