Was “Cash for Clunkers” a clunker?
A couple months ago I took some heat when I suggested that the cash-for-clunkers program might not be borrowing sales from the future, but might actually encourage consumers to make up for their abysmal sales of the past. Naw, people commented. Most of those sales were taken away from the rest of the year. Once the government program is over, sales will go right back into the cellar. In fact, many thought, they’d probably be a lot lower than before
Well it didn’t work out that way. Sales in September did indeed fall back below 10 million per year, as expected. But October’s sales numbers recovered. And there’s a lot of discrimination by car-maker. While total sales were unchanged from a year ago, GM’s were up 4%, Ford’s were up 3%, Toyota was flat, and Chrysler was down. Lest anyone think this was a “buy American” boom-let, Hyundai sales were up 50%.
There are a lot of reasons for sales to move higher, but the biggest one is this: after a year of financial turmoil, consumers are ready to make up for lost time. We scrap some 9 million cars per year. With a million new households formed each year, we haven’t been keeping up with demand. Cash-for-clunkers may have been an awkward program and poorly run, but it got people spending again. By this measure, cash-for-clunkers was a coup.
Douglas R. Tengdin, CFA
Chief Investment Officer
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