Cash for Clunkers, Some Details

Economists and policy makers under-estimated the attractiveness of the cash-for-clunker scheme. The US was among the laggards in adopted such a program. It has been fairly successful where ever it has been implemented. Germany, for example, was among the first to adopt the scheme and auto sales rose by nearly a quarter year-over-year. Overall, sales in Europe were off by 10%. However, as other countries tried their hands, of course with some national variance, auto sales rose on a year-over-year basis in France, Italy and South Korea in July, while Japan and Spain reported smaller declines in sales.

US auto sales reached a surprising 11.3 mln annual unit pace in July. The consensus was for a 10.2 mln unit rise. Sales stood at 9.7 mln in June. There has been much talk about the US program subsidize foreign producers, but domestic vehicle sales rose to 8.4 mln from 7.2 mln (that is a 16% jump) and relative to a consensus guess of 7.4 mln unit. Ford car sales rose 2.4%, their first increase in some 20 months. Nevertheless, Transportation dept data cited by one press account noted vehicles made by Ford, Chrysler and GM accounted for less than half the sales under the cash-for-clunker program in the applications processed until the end of July. Of course, many foreign producers build cars in the US too, employing US workers. A news wire report quoted a GM official estimating that the $1 bln cash for clunker program generated about 118,000 sales--86k directly with the program and another 33k from people drawn to the dealerships by the program.

Another interesting detail is that some 47% of the clunker-for-cash deals were accounted for by companies, not households.

At the end of last week, the House of Representatives voted 316-109 to fun the cash-for-clunker program with another $2 bln. There was some resistance in the Senate, but recent comments suggest the opposition does not have much conviction and will likely be approved. But since the House has already adjourned for the summer recess any change in the bill would effectively kill it until at least Sept. The Senate is expected to begin its recess next week. The rise in auto sales will have a strongly positive impact on a number of economic reports, including retail sales and personal consumption. Increased auto production will also impact industrial output--not just for autos, but also for steel and other industries, paints, plastics, etc, that feed into the auto industry.
Cash for Clunkers, Some Details Cash for Clunkers, Some Details Reviewed by magonomics on August 04, 2009 Rating: 5
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