Car Sales Fall Back To Historic Lows, Proving Cash-4-Clunkers Was A Clunker

The problem with the liberal-glorified cash-for-clunker program was always obvious to anyone who would but contemplate: the spike in sales merely robbed future sales, or delayed past ones.

My own parents waited for at least a couple months to buy a car for the program to go into effect.  Ultimately they walked away from it due to the massive aggravations of the program (my father is a very patient man unless and until things stop making sense – at which time he starts to lose it) and decided to keep their “clunker” until they needed to buy a new car.

The funny thing is, they very likely would have already bought a new car had it NOT been for the cash-for-clunker program.

September Auto Sales Seen Slumping Post-‘Clunkers’
Published: Monday, 28 Sep 2009
By: Reuters

U.S. auto sales likely fell in September back to the nearly three-decade lows of early 2009 without government incentives to spur buying, leaving in doubt the timing and pace of a recovery for the battered industry.

Nearly 700,000 new cars and trucks were bought by U.S. customers through the government “cash for clunkers” incentive program from late July through the first three weeks of August, a leap from recession-stunted sales earlier in 2009. […]

“There are still a lot of obstacles out there,” she said. “I think we are still going to see the hangover from ‘cash for clunkers’ both in September and almost potentially through the end of the year.”

Sales Drop at All Major Automakers

U.S. auto industry sales rose 1 percent to more than 1.2 million vehicles in August from a year earlier under the “clunkers” program, the first time monthly sales pierced the 1 million mark in a year.

However, none of the largest manufacturers are expected to post sales gains in September, and Edmunds has forecast a 23 percent industry sales decline for the month.

Edmunds expects Ford Motor to post a 9.7 percent sales drop, GM a 46.1 percent drop and Chrysler a 48.7 percent decline among the Detroit automakers.

Edmunds expects Toyota Motor to post a 9.7 percent sales decline, Honda Motor an 8.3 percent drop and Nissan Motor a 1.1 percent drop among Japan-based automakers.

The August sales gain represented a seasonally adjusted annualized rate of 14.1 million vehicles, but did little to turn the tide on annual sales. U.S. auto industry sales were down nearly 28 percent through August 2009 versus last year.

Global Insight expects U.S. September auto sales to come in at a 9.33 million seasonally adjusted annualized rate, or well below the 12.5 million unit rate from a year ago when credit markets froze in the wake of the Lehman Brothers collapse.

The median forecast for U.S. auto industry sales was 9.5 million vehicles from 41 economists surveyed by Reuters, while J.P. Morgan believes the annualized rate could drop to 8.9 million vehicles — the lowest month since December 1981. […]

This comes as no surprise to people who had a clue.  For example, John Quelch predicted in August:

C4C disrupted the even flow of supply and demand. New car buyers held back in advance of the launch of the program; in fact, many prenegotiated with dealers to do so. And, now the promotion is over, expect year-on-year sales to be lower than they would have been because so much consumer demand has been concentrated in the promotion period.

The Daily Plunge predicted:

The auto industry received a short-term “sugar high” at the expense of lower future sales when the program is over. The program apparently boosted sales by about 750,000 cars this year, but that probably means that sales over the next few years will be about 750,000 lower. The program probably further damaged the longer-term prospects of auto dealers and automakers by diverting their attention from market fundamentals in the scramble for federal cash.

And whaddyaknow?  That’s basically exactly what happened.

In addition, the fuel savings came at a very high cost.  In fact, in order to save $815 million in oil via the better mileage of the new cars, the U.S. Treasury had to pay out $2.877 billion.  In other words, for every dollar saved in fuel, the taxpayers lost $3.53 cents.  Some savings.

Poor people – who couldn’t afford to buy a new car with the cash for clunker incentive – will also now lose out on billions of dollars’ worth of used cars that were destroyed under the program.  The price of the cars that would have improved their lives (and their mileage) were shipped to China as scrap metal.  And law of supply and demand guarantees that the price of used cars will go up for the people Democrats always say they’re trying to help.

The cash for clunkers program ought to sound eerily familiar to people who’ve done any reading about the Great Depression, because it was the same kind of program that led to the slaughter of hogs under the Agricultural Adjustment Act (which was intended to raise hog prices but led to famine instead).  The issue here is the same one as back then: the profound arrogance of economic planners who think if they just get enough data, and they turn all the diodes exactly the right way, and if they get all the right memos and all the right forms, that they’re going to be smarter than free market would be.

Big government liberals invariably believe they know how to allocate resources better than markets do — just like the Marxist economic planners did.  And the problem is like that fairy tale about the old woman who swallowed a fly; every single solution they come up with just creates another problem, and then you get this continual snowball effect that just keeps getting more insolvable.

And thus it is with the cash for clunkers thing.  Maybe some of these people who bought a new car didn’t really need a new car; what they really needed was a new refrigerator or a new washing machine – but they got such a great deal on that car!  The government knows better that they needed to buy a new car more than they needed to buy a new refrigerator or a washing machine or a host of other products.  And so the government artificially incentivized people to buy the car that they really didn’t need.  And instead of buying all the things that they really should have bought and WOULD have bought anyway WITHOUT the billions in taxpayer dollars, now people have taxpayer-funded cars they really didn’t need to buy.

So, as an example, were told that “Durable goods orders show unexpected decrease in August,” but it shouldn’t have been “unexpected” at all.  What it was was the opportunity costs due to all the people buying cars instead of other goods.  Like refrigerators and washing machines.

And at the same time, all we’ve really done is rob demand from a couple of years down the road, where these people were almost by definition ultimately going to buy new cars anyway.  Why?  Because they have CLUNKERS, dammit!


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2 Responses to “Car Sales Fall Back To Historic Lows, Proving Cash-4-Clunkers Was A Clunker”

  1. Cars4Charities Says:

    Not only did cash for clunkers not help the auto industry or the environment, it severely hurt auto repair shops and car donation charities.

  2. Michael Eden Says:

    Great points, Cars4Charities – and I’m glad you filled that in.

    “Cash 4 Clunkers” was deemed to be this huge success. Why? Because it was a popular program.

    It was a terrible program. It was implemented in a disastrous fashion. A budget that was forecast to fund the entire program for its two-month duration disappeared in three days. And now we know WHY: because people (like my parents) were waiting for it, putting off car purchases they would have made EARLIER. And then more people hastened their purchases, such that the net effect was not to INCREASE ANYTHING.

    Now we’re right back to where we started, expect for all the damage the program left behind – such as a dearth of used cars for poorer people, a dearth of donations for charities, a dearth of business for repair shops, and a giant surplus of people who rushed to buy stuff they didn’t need and couldn’t afford.

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