Sunday, September 13, 2009

Cash for Clunkers = Fail

Apparently, the "cash for clunkers" program has had some unfortunate side effects.

While most dealers are grateful for the boost, they're paying for it now with fewer customers. The government rebates drew people into the market who otherwise would have kept driving their clunkers due to uncertainty over the sputtering economy. Those customers might have made their purchases later in the year.

"It was good while it lasted," said Phil Warren, sales manager at Toyota Direct in Columbus, Ohio. "Now we're a little bit concerned about what happens next. The program may have just taken a lot of people out of the market."

Making matters worse, many dealers depleted their stocks with clunker sales, and automakers have been slow to ramp up production to replenish the lots. Grahl says Ford has built the cars he ordered but mysteriously hasn't shipped them. So the selection isn't very good for people who do want to buy.

Gee, it's almost like government interference unbalances the free market or something.

As a result, U.S. sales of cars and light trucks rose to 1.3 million in August, a roughly 30 percent increase from July. But now that the clunkers program is over, industry analysts expect poor September sales, even lower than the July rate.

And then, of course, there is the usual government efficiency.

Kesel, like many dealers, still hasn't been paid for most of his clunker sales.

"Most dealers are in a cash-flow crunch because of the federal government not paying up on this," he said.


Anonymous said...

Hopefully we won't see a bullwhip effect.

With luck, the dealers didn't order extraneous inventory over the CFC generated sales spike.

Also, we should hope that the American consumer hasn't decided that they will wait for the next CFC program to buy a car, as this will result a longer period of poor sales.

Jake (formerly Riposte3) said...

Agreed, on all points.

Something even the "experts" don't really seem to talk about is the fact that anytime you have significant economic downturn, there's going to be a sort of "yo-yo" effect - something that happens with any naturally self-correcting system (like the free-market) that moves away from it's equilibrium point. It will overcorrect to above that point, then to below (but not as far as the original movement), then above, and so on until it stabilizes. Just like most systems, you can try to damp that oscillation, but you're probably better off letting it happen on it's own - especially in a system like the free market, where that equilibrium point tends to move around based on multiple factors.

Trying to manually correct the original deviation tends to make those natural overcorrections even worse. I just hope the government hasn't seriously destabilized things.