Cash for Clunkers: Everyone's a Winner

It is hard to argue with the success of the “Cash for Clunkers” automobile incentive program so far. With $1 billion already blown through, Congress is working on a $2 billion extension, despite most Republicans being against the program (probably because it was a Democratic idea, not because it is not working).

So far the average consumer is trading in their clunker for a new car that gets 9 miles per gallon more than the vehicle it replaced. The sales spike during the last week of July has led both Chrysler and Ford (F) to report July sales gains, the first increase in 2 years for the domestic automobile industry. General Motors (GMGMQ.PK) reported a 19% decline in sales, but still saw an enormous benefit from the program.

It remains to be seen if car sales will be sustained at higher levels, but the glass looks half full at this point. New car inventories are near all-time lows so inventory rebuilding in coming months should boost GDP pretty significantly, perhaps leading to a positive GDP print for the third quarter.

The car companies are not the only beneficiaries, however. “Cash for Clunkers” helps consumers and the country as a whole too. Higher fuel efficiency should not be understated. Consumers will save money by spending less to fill up their gas tanks, freeing up money for other things. In addition, less pollution from the new vehicles not only is safer for Americans but the environment in general as well.

Despite skepticism from many, this program does show that smart government spending can stimulate the economy. In this case it does so in more ways than one, making the investment well worth the several billion dollars spent.

Full Disclosure: No positions in Ford or GM at the time of writing, but positions may change at any time

Comments

[waldipup:]

"this program does show that smart government spending can stimulate the economy. "

Hooraay for CASH FOR CLUNKERS , the newest TV Game Show!

Maybe we can get Vanna White as a host.

Why am I buying someone else a car with my freakin money?

Why am I paying taxes to subsidize my neighbors car?

Yeah , nice analysis , it's a win win , for everyone , lets have a few spinoffs , like the reality shows -

CASH FOR REFRIFGERATORS , CASH FOR LAPTOPS , CASH FOR .....

Gimmee a break . This is absofreakinlutely NOT the governments job or mandate , and indicative of the downfall of the free market system and the limited role government should be playing in our lives.

You like it now , like a junky likes his first free hit.

Aug 04 08:45 AM

[String4721:]

You are kiddin' right? All you are advocating is more big government by this silly, sophomoric analysis. The previous comment is right on, when would it stop? The lesson that SHOULD be learned out of this is what would happen to the overall economy if people got to keep more of their money. Many other industries would get the boost that the auto industry just received from this program with people in control of their own money.

Aug 04 09:23 AM

[GotLife:]

For the best analysis of this silliness go to:

www.sbabg.org/2009/08/.../

CNBC spent the day yesterday interviewing auto salesmen who suggested all restrictions should be removed so everyone in America could participate. Can't wait for the House Bill that builds on their integrity or the wisdom of making "Everyone A Winner." (Sarcasm)

Aug 04 09:35 AM

[Pstoneki:]

Wow - this must be the first government incentive program you have heard of. What about the Farm Bill, where we used to (thanks Mr Obama for putting and end to this stupidity) pay hudreds of millions of dollars for logging roads just to provide a few poor loggers a job cutting uneconomic timber? Did you have a problem paying huge amounts of your tax money to save 10 cents on a 2x4? Fact is, there are lots of government incentive programs spending hundreds of billions of dollars a year. It's called policy. Cash for Clunkers is a drop in the bucket.


On Aug 04 08:45 AM waldipup wrote:

> "this program does show that smart government spending can stimulate
> the economy. "
>
> Hooraay for CASH FOR CLUNKERS , the newest TV Game Show!
>
> Maybe we can get Vanna White as a host.
>
> Why am I buying someone else a car with my freakin money?
>
> Why am I paying taxes to subsidize my neighbors car?
>
> Yeah , nice analysis , it's a win win , for everyone , lets have
> a few spinoffs , like the reality shows -
>
> CASH FOR REFRIFGERATORS , CASH FOR LAPTOPS , CASH FOR .....
>
> Gimmee a break . This is absofreakinlutely NOT the governments job
> or mandate , and indicative of the downfall of the free market system
> and the limited role government should be playing in our lives.<br/>
>
> You like it now , like a junky likes his first free hit.

Aug 04 10:02 AM

[Paul S C:]

I am embarrassed for the author of this 'analysis'. This is a joke.

Aug 04 10:07 AM

[Pstoneki:]

Oh, and we do have cash for refrigerators, windows, solar panels, insulation, storm doors, light bulbs, heat pumps, geothermal, etc. Energy efficiency rebates from Uncle Sam and most states are incentive programs to encourage people to implement energy efficiencies in their homes. Another worthwhile program.


On Aug 04 10:02 AM Pstoneki wrote:

> Wow - this must be the first government incentive program you have
> heard of. What about the Farm Bill, where we used to (thanks Mr Obama
> for putting and end to this stupidity) pay hudreds of millions of
> dollars for logging roads just to provide a few poor loggers a job
> cutting uneconomic timber? Did you have a problem paying huge amounts
> of your tax money to save 10 cents on a 2x4? Fact is, there are lots
> of government incentive programs spending hundreds of billions of
> dollars a year. It's called policy. Cash for Clunkers is a drop in
> the bucket.

Aug 04 10:12 AM

[Mad Hedge F...:]

You got it. Perhaps it was the newspaper gene in me that made me screech my car to a halt when I saw a near riot in progress at my local Toyota (TM) dealer. The showroom was more jammed than the unemployment office, with eager salesmen recalled from vacations, manning card tables set up in every available space. I managed to grab one peripatetic salesman by a lapel, who gushed that they sold 45 cars yesterday, compared to ten for a normal Friday, and that 35 of these were the fruit of the “Cash for Clunkers” program. Sure I could get a $4,500 credit for my 1995 BMW (17 mpg), and apply it to a new Prius (50 mpg), taking the price down to $19,500 and the monthly payment to $450/month for five years. In fact, the government stimulus program was so successful, that it ran out of money in the first four days, and congress rushed to triple it to $3 billion on Friday. It was like the survivors of a ship torpedoed at sea were swimming frantically for the only piece of wreckage that floated. Assuming that the average car drives 10,000 miles a year, and the average swap generates a mileage improvement from 15 mpg to 27 mpg, junking 750,000 clunkers will save 30 million barrels of crude a year, 1.5 days of our total annual consumption, or three days of imports. I asked to see the cars that were traded in and was told that the lots for the dealer, the used cars, and the detailer were all full, but I could see some if I went to the Target nearby where they were renting extra spaces. There I saw the fleet condemned to clunkerdom, GM Safari’s, Jeep Cherokees, Buick Regals, Dodge Ram pickup trucks and vans, and Chrysler minivans by the dozen, all with “CFC” marked on their windshields, a certain death sentence. These sorry excuses for transportation will never belch blue smoke, nor drip oil on our interstates again. I can’t imagine a sorrier commentary on the management failure of the US car industry for the last 30 years

Aug 04 12:09 PM

[snagglesnarf:]

Just because a program is popular does not mean it is good. The money used for 'Cash for Clunkers' has been borrowed by the government which will have to be paid back in the future by our children. .

Aug 04 12:49 PM

[exportman:]

Billions of dollars spent that this country doesn't have to help the auto industry sell more cars is an ill concerived program. The dealers are confused about future details because Washington isn't releasing details fast enough to keep the sales moving. The program is also conceptually flawed in that any vehicle over 25 years old doesn't qualify for the rebate. Wonder which genius decided that vehicles made before this cutoff date aren't clunkers.
While most of us could easily put together an extensive list of how else these billions could be spent on alternative ideas, we shouldn't forget Senator Dirksen's glib comments about billions and real money. A billion bucks is still a lot of money. $1B could pay for 20,000 teachers, cops or firefighters, instead paying people $4500 to get a few more miles per gallon on a vehicle that hasn't reached the clunker stage.

Aug 04 03:33 PM

[Ernesto Gom...:]

Totallay wrong - CFC works great. I dumped a cruddy old Astro Van and got a new Corolla for $184 mo with only $2,300 down. Saving over $125 a month in repairs and gas.


On Aug 04 12:09 PM Mad Hedge Fund Trader wrote:

> You got it. Perhaps it was the newspaper gene in me that made me
> screech my car to a halt when I saw a near riot in progress at my
> local Toyota (seekingalpha.com/symbo...) dealer. The showroom
> was more jammed than the unemployment office, with eager salesmen
> recalled from vacations, manning card tables set up in every available
> space. I managed to grab one peripatetic salesman by a lapel, who
> gushed that they sold 45 cars yesterday, compared to ten for a normal
> Friday, and that 35 of these were the fruit of the “Cash for Clunkers”
> program. Sure I could get a $4,500 credit for my 1995 BMW (17 mpg),
> and apply it to a new Prius (50 mpg), taking the price down to $19,500
> and the monthly payment to $450/month for five years. In fact, the
> government stimulus program was so successful, that it ran out of
> money in the first four days, and congress rushed to triple it to
> $3 billion on Friday. It was like the survivors of a ship torpedoed
> at sea were swimming frantically for the only piece of wreckage that
> floated. Assuming that the average car drives 10,000 miles a year,
> and the average swap generates a mileage improvement from 15 mpg
> to 27 mpg, junking 750,000 clunkers will save 30 million barrels
> of crude a year, 1.5 days of our total annual consumption, or three
> days of imports. I asked to see the cars that were traded in and
> was told that the lots for the dealer, the used cars, and the detailer
> were all full, but I could see some if I went to the Target nearby
> where they were renting extra spaces. There I saw the fleet condemned
> to clunkerdom, GM Safari’s, Jeep Cherokees, Buick Regals, Dodge Ram
> pickup trucks and vans, and Chrysler minivans by the dozen, all with
> “CFC” marked on their windshields, a certain death sentence. These
> sorry excuses for transportation will never belch blue smoke, nor
> drip oil on our interstates again. I can’t imagine a sorrier commentary
> on the management failure of the US car industry for the last 30
> years

Aug 05 01:10 AM

[nova:]

Ernesto Gomez III wrote:

"Totallay wrong - CFC works great. I dumped a cruddy old Astro Van
and got a new Corolla for $184 mo with only $2,300 down. Saving over $125 a month in repairs and gas."

Our shitty politicians (Obama and the Congress) cannot do anything right. It appears that US taxpayers are mostly subsidizing Japanese and Korean imports. Dear UAW members, you are screwed up again by your beloved Government.

Well, the old saying goes: It is better to lose with a smart man rather than find with an idiot.

Aug 07 10:47 AM