Sales have slowed. The first billion dollars went out the door on the first weekend. It’s taken three weeks to go through the next 700 million. That 700 million represents about 155,000 cars. The normal level of sales for cars in August is over a million units. Given that there’s $4500 per vehicle available to people, it’s no surprise that a lot of clunkers would be traded in. The question is whether or not these are sales that would have happened anyway, or whether overall car sales are back down to pre-clunker levels.
There is no question that this program stimulated car sales somewhat. You would expect nothing less of a $4500 gift for every car purchase. The larger questions are whether the sales simply came at the expense of other areas of the market, or whether they come at the expense of future sales (and not far enough in the future to make Keynesian sense - this program will end in a month or two, while the economy is still in big trouble).
Also, let’s not forget that the government spent 3 billion dollars. Any benefit in auto production has to be weighed against that. 3 billion dollars at today’s rates for long bonds works out to be 150 million dollars per year in interest. Since the government is unlikely to ever completely pay off the debt, that’s a $150 million dollar drag on the economy every year, forever.
Then there’s the residual value of 750,000 vehicles, destroyed. The residual energy value is probably greater than any savings in the ‘clunkers’ program. And now there’s a big ‘hole’ in the used market which will distort prices and hurt poor people.
But hey, the UAW managed to keep the party going for an extra 2 months.
I’m actually surprised that it has been so high, since a lot of car dealers are reasonably suspending the program until they get paid by the government. There is going to be slowing of course; there always is after introduction of a new program like this. The question will be whether the slowing is more than projected. The initial burst of sales was clearly higher than the projected sales through November. As for expected August sales, it is nonsense to compare this to a non-recession year. No one expected C4C to make the market go back to normal. In fact this month’s sales will be worse than last year’s August sales, which were good, just before the bottom fell out.
BTW, while you and Edmunds claimed that C4C caused buyers to delay purchases, this article, from the end of June, said that auto sales in fact recovered slightly just before C4C. Was Edmunds predicting that the recovery was in full swing anyhow? I’d love to see evidence of that.
Car inventories, according to an article in the Times yesterday, are now at their lowest levels on record. That’s why Ford and GM are increasing production. Overtime rather than bringing people back, unfortunately, but I can understand them being cautious. One of the plants benefiting is in Canada, so don’t claim I don’t see any downside.
It is quite likely that some of the drop in retail sales last month was due to C4C taking money from normal expenditures. I haven’t seen what percent of the money down came from savings versus other consumption. But, since so much consumption is from imports, moving it to domestic manufacturing does have some economic benefits without the protectionist downside.
Perhaps it has moved purchases up. But that is a plus. As you’ve said yourself, a problem with the stimulus package, any stimulus package, is the amount of time needed to inject the money into the economy. If this moved $3 billion from next year or 18 months from now to now, when we really need it, that is excellent. So, it addresses one of your legitimate concerns.
On the plus side there are increased tax revenues from the income of the workers now working or working extra, from sales commissions, and from reduction in unemployment. Local governments, who really need it, are getting additional revenue from sales taxes and license fees. If you think a stimulus package is useless, then C4C is also, sure. But that is not a majority opinion. Given that it is useful, this money, which comes from the stimulus package, accelerates the stimulus.
We’ll have to see about this supposed used car market disaster. There are still plenty of SUVs that have been sitting on used car lots since the $4 gallon. Given the reduction in demand, I’m not at all sure I’d expect a shortage. Plus, how many people who bought new cars would have bought used ones if not for C4C? Things might not be too bad.
The real negatives from scrapping cars have to be scaled by their expected lifetimes. It also appears that not only are the fuel economy improvements greater than forecast, but it seems that people who traditionally bought gas guzzlers are trading in for fuel efficient cars to get the extra money. I heard a lot about the problem of people trading in 17 mpg cars for 19 mpg cars. If that even was possible under the program, it was clearly rare given the big boost in average mpg improvement.
Once the government gets caught up with the rebates, and dealers feel comfortable again, then we’ll see how sales go.
Please present evidence that the current private insurance system, which allows us to go to the doctor or get procedures at very little out of pocket cost, has increased demand incredibly in the form of useless doctor visits. It is possible that someone paying out of pocket might decide that procedures recommended by a doctor for a needed visit are unaffordable, but please present evidence that this wouldn’t lead to as many or more medically necessary procedures being skipped.
I’ll agree that the number of medically indicated visits by the un- and under-insured will increase - but some of us think that these people getting needed medical care is a good thing. YMMV.
With luck the economy will improve enough by then that they can keep their jobs. If not, they at least have some money now. Or do you think they are giving up real opportunities in that hot Detroit job market?
Cite? Inventories of all vehicles are at historic lows. Yes they are running out of the high mileage ones, but I wouldn’t call the supply of others a glut, except in the sense that there is and has been low demand since the oil price spike.
Except that the gas guzzlers - trucks and SUVs - are naturally bigger and thus more expensive than the high MPG cars. Detroit will cut back on production of the ones they have had to sell at low margins to get rid of, and increase production of those now in demand. I hope they will be clever enough to do this a bit more effectively than before now there has been a reset. There also has been a bit of a recovery in sales of guzzlers due to lower prices, which is unfortunate but might explain why the inventory got cleaned out even of these.
The inventory problem has already been corrected. In any case, unless there are so many gas guzzlers out there on lots that they will overwhelm production of fuel efficient cars, the change in production mix to fuel efficient cars from gas guzzlers obviously makes the average fleet fuel economy go up. That’s 7th grade math. If Detroit is stupid and increases production of guzzlers again despite this supposed glut, then the average fuel economy may go down - but you’d think they’d be pushing to meet the new rules.
In the meantime, you will have destroyed 750,000 cars that still had value. This represents about 5% of the used car market. What do you think might happen to the price of used cars? And what will that do to the used car dealerships?
Cite? Most driving is to work, and is not optional. This may be true for families with multiple cars that can afford to have the least efficient basically stored in case of high usage.
Let’s say the old car gets 1 MPG and the new one gets 40. That’s about as valid as your analysis. I’m not sure if a care getting 25 MPG is eligible as a clunker - my 12 year old car that gets this isn’t. But here are the real numbers from the Slate article.
So let’s do your analysis with numbers not pulled from your ass. The old car would use 759 gallons. The new one would use 472, a savings of 287 gallons a year, nearly 5 times yours. So, it pays off the extra gas in under one year.
When you are justifying your position with numbers, real ones would be most helpful.
That would have been nice to tell dealers up front. Or better yet, the program could have been delayed until the government had its ducks in a row. Wouldn’t it be just marvy if this program actually winds up hurting the dealers it was intended to help? A bunch of them have run out of cash and are now scrambling to come up with operating funds by taking out short term loans and such. And so far, only something like 3% of the deals have been reimbursed, and the rate of reimbursements does not seem to be improving.
I wasn’t projecting this against a non-recession year. Before the retail numbers came in for the month, economists expected a .1% gain over the previous month. Instead, there was a .1% drop. Non-auto retail dropped .6. So it would certainly seem that C4C scavenged from other retail markets. And even with the program, overal sales were lower than expected. That’s not good news, and there’s certainly no evidence at all in those numbers that C4C helped overall.
Again, you talk about the benefits without considering the costs. Look, no one disputes that parachutung 3 billion dollars into the auto industry will likely result in a temporary boost. The question is whether or not the 3 billion dollars represents a good value for government money. Why not give a $10,000 rebate? Or $15,000? If our only measure of success is how many new cars are sold, then a $15,000 stimulus is bound to be much better. But of course, there are costs involved. Not just the money spent, but the costs of lost opportunity, market distortion, confusion, etc.
I’m not thinking 18 months, and neither was Edmunds. They’re talking about moving up sales by a month or two. That has no effect in a Keynesian sense.
If the sales were simply scavenged from other retail, with no overall boost to retail sales, then the increased taxes from the auto workers and dealers will be offset by the tax losses from the other retail sectors.
I did that. I assumed that they had on average 2 years of useful life left, and pro-rated their energy cost against that. 2 years may be conservative - a lot of these trade-ins are cars of late 90’s - early 00’s vintage, and they could likely have been driven for years. My 2003 Escape looks and drives like new. But I decided to err on the conservative side and assume we were only losing 2 years of useful life per vehicle.
I think that if these jobs aren’t sustainable, then those people are going to have to leave the Detroit market anyway, and it’s dubious whether spending billions of dollars to give them a couple more months of work is a good use of taxpayer money.
So… The auto dealers have come up with their own ‘stimulus’, which is essentially a $4500 discount out of their own pockets to try to move the glut of SUVs and other high mileage vehicles they are now stuck with. Exactly what I predicted would happen. Now in the next month you may see the average mpg of new vehicles drop, counteracting the higher mpg from last month.
I notice ‘reset’ is in the vocabularly of a lot of Obama people lately, as if the rules of the market will magically change because of a short-term stimulus or other government program. The fact is, auto companies will make what sells. If the price of gas stays reasonable, they’ll sell a whole lot of SUVs eventually. If not, they’ll sell more small cars. There’s no ‘reset’ that happened here to permanently change the patterns of consumption.
The current glut has nothing to do with future production, because it’s a glut of 2009 vehicles. They have to be cleared out to make way for the 2010’s, even if the dealers have to take a loss on them. Hence the additional $4500 cut they’re willing to take to move them.
Once they’re gone, manufacturers will set their production goals to match whatever the future demand mix is. And it will have nothing to do with this program.
My numbers were more real than theirs, which basically come right from the administration. Can you not spot the error? They’re taking full credit for the increased fuel consumption of new cars vs traded in cars, as if without C4C people would be buying vehicles with the same fuel consumption as the ones being traded in. But this is certainly not the case. There have been tremendous increases in average fuel efficiency over the past ten years. The move from 3 and 4 speed automatics to 5 and 6 speed automatics has increased fuel economy from 5-10%. Direct injection is now common. Advanced fuel computers shut off fuel flow when the car decelerates.
The question is how much additional fuel savings have come as the result of cash for clunkers, and it’s nowhere near 61%. To figure it out exactly, you have to look at the mix of vehicles sold before C4C, and the mix of vehicles traded in, and then do the same for the C4C deals. The savings you can attribute to C4C will be a small fraction of that 61%. My numbers are much closer than the administration’s tendentious press release would have you believe.
For example, This cite says that the average fuel economy of the fleet sold in July was 22.1 mpg - and 21.4 in June before C4C took effect. A difference of .6 mpg. Now, the difference in the C4C program will be greater since it’s only a fraction of total car sales. However, the 21.4 number is useful, because it tells us what the average is for new vehicle sales without C4C.
Now, your slate cite says the C4C cars averaged 25.4 mpg. Let’s use that number. And the vehicles traded in averaged 15.8, which is how they came up with that big 61% number. But without C4C, the increase would have been 46%, assuming the mix of traded in vehicles was the same (I know it wasn’t, but we can worry about that next). So C4C is responsible for an additional 15% in fuel economy - not 61%.
Now, how about the mix of traded in vehicles? I can’t find data for the average mileage of trade-ins before C4C. I will concede that it’s a bit higher. But it won’t be that much higher, as there has been a trend in the past couple of years for the more fuel-efficient cars to hold their value and more trade-ins are gas guzzlers.
Anyway, let’s even assume the 61% number is correct. Unfortunately, that’s not even good enough. According to your own cite:
So even if 61% is correct, it turns out that the the government bought CO2 at only about 10X market value. It could have reduced CO2 emissions by ten times that amount by simply buying CO2 credits on the European exchange and retiring them.
But since the 61% number isn’t correct or even close to it, it’s likely that the program was at best an environmental wash, and possibly even a net negative.
Maybe it isn’t sustainable. Maybe it is. The recession won’t last forever, and this few months might be a significant chunk of the time they’d be out of work. C4C is also useful in that it sends Detroit a message about the market for the small cars it has disdained for years.
Very week. here is an article giving information on inventory levels. Chrysler has a 40 day supply, GM’s inventory is at historic lows. That is for all cars - the inventory of fuel efficient ones is much lower still. Sure SUV inventories are relatively high, but that’s been the case since that market collapsed when gas hit > $4 a gallon. Detroit screwed the pooch on that one and I don’t see any reason for government to bail them out and reduce the MPG fleet average.
Based on the ads I hear going to work, they’ve been doing that long before C4C. You get stuck with a surplus of something the public doesn’t want, you cut the price. Ever hear of Filene’s basement? Nothing at all to do with C4C. If you’ve got evidence that sales of this stuff has gotten worse, please present it. It is possible, but SUV sales have been miserable for a year. But I won’t blame it on Bush.
They haven’t been doing such a great job on that lately, have they? Actually they have been making what has the highest margins, and not diversifying enough. They ceded the high mileage market to the Japanese, and then got screwed when the US market went there. They’ve used bankruptcy to clear out car lines, and factories, and dealerships. Looks like a reset to me. A reset doesn’t guarantee success, of course. But the point is that changing the mix to make more high mileage care improves the fleet average.
Sales of existing cars is not going to change fleet averages a lot. The statistics don’t show a glut - 40 day supply is not a glut, it is a shortage. Part of the shortage is from cutting production, of course. Since the 2009s are still being made, I don’t think you can call this a clearance sale. The real glut was in 2008 models which just sat there when the bottom fell out last September. Maybe they are still unloading some of them.
Current production goals have everything to do with the program, since they’ve stepped up production on the models sold through C4C. That people are buying cars more fuel efficient than they need to to qualify for the rebate might be saying something to the product planners. We’ll see.
One minor factor this guy didn’t include - the cost of gasoline. The inflation adjusted price of gas - which fell from $3.20 (1981) to $1.35 (1998) - cite- pretty much the period covered on his chart. We all know that miles drive nosedived when gas prices skyrocketed. The absolute gas usage has decreased in California even before the recession thanks to our high prices. I can’t find a cite on miles driven or average MPG, so I don’t know if either is correlated with this. But gas prices still are. I think it is fair to say that a guy who ignores the influence of gas prices is stupid or dishonest.
First of all, saying that your numbers, which assume an mpg of the trade-in too high to qualify for the program are as good as the official numbers (which I don’t think even Fox News has challenged) is total bullshit. Admit it, you got caught.
Second, your citeless assertion has a problem. Like it not being true. Here are the numbers - scroll down to the table. Fuel efficiency of the best cars has climbed, but the mix is the important thing. C4C has changed the mix. If your assertion was true, why did Detroit scream bloody murder at improved CAFE standards for so long?
As for trade in mix, an article in the Times or the Murky News quoted dealers as saying that long time truck customers, who always traded a truck for a truck, were getting small cars from C4C. I’m too tired to look for the cite, I think I’ve backed my statements up enough. I think the 10 MPG average increase is good evidence for this.
I was just doing the calculation the same way you did it. If you have arguments, do it in the mirror. However, it is 61% compared to the case where the person kept the clunker. I’m not sure, but I think you are saying that in a non-C4C world there would have been a magical spike in car sales in July. Clap your hands 3 times, and the recession will be over. Sorry, not buying it.
You are assuming that people with cars with lower than average MPG will be trading in for cars with average MPG. That’s almost certainly not correct. People tend to trade like for like, since they have a certain class of car for a reason. If I were still pulling a horse trailer with my truck I wouldn’t trade it in for a Prius. I suspect that one of the reasons the government underestimated the improvement is exactly this. C4C seems to have not just improved mileage from newer cars, but changed the mix also.
As for CO2, if that was the major reason for C4C I’d agree it isn’t worth it. The stimulus benefit and the benefit from reduced gas use are far more important. There are far more efficient ways of reducing CO2 than individual cars.
It’s still a better choice than the 14mpg SUV, in that it requires a net gain in mpg–and thereby presumably a net decrease in the amount of fuel used. They may be in the minority, but I’m sure many SUV owners do actually need a sizable vehicle. If you offer them a deal on a Prius they still won’t take it.
I think it’s turned out to be one of the more creative ideas they’ve come up with. Try to zap an industry out of the doldrums, and while doing so, encourage car shoppers to buy, and ultimately manufacturers to make, more efficent cars.
As this article indicates, there is concern about the residual effects of CFC. Obviously, it grabbed some of the sales that would otherwise have happened during the coming six months - so it will be interesting to see what happens to the industry in its wake.
