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September 20th, 2009

Well, That Didn’t Last Long

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The Cash for Clunkers (C4C) honeymoon is over. The Federal program which provided vehicle buyers with up to a $4,500 voucher for their used “gas guzzler” managed to increase the vehicle sales rate in August to 13.7 million units — the “first year-over-year increase since October 2007,” according to Autonews.com.

However, just one month later, according to Edmunds.com, light-vehicle sales have tanked to historic lows. Their sales rate in September plummeted to 8.8 million — the lowest rate in nearly 28 years. That dismal figure ties the worst on record:

After the cash-for-clunkers program boosted August sales to their first year-over-year increase since October 2007, demand has plunged. In at least the last 33 years, the U.S. seasonally adjusted annual rate has only dropped as low as 8.8 million units once — in December 1981 — with records stretching back to January 1976.

There’s not much more to say than that. Three billion taxpayer dollars were spent to help boost vehicle sales for just one month.

Was it worth it?

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4 Responses to “Well, That Didn’t Last Long”

  1. Chris Says: September 20th, 2009 at 2:24 pm

    Further fallout from Clunkers:
    John Mauldin reports,

    “Outrageous! – Artificial Deflation!
    Speaking of deflation, let me mention something I find totally outrageous. Normally, I actually take up for the bureaucrats who are stuck with the task of trying to monitor inflation. It is a tough job, and like Monday-morning quarterbacks, everybody thinks you should have done it differently. I can understand the rationale for hedonic measurements, housing rent equivalents, etc., even if I don’t agree with them. You have to set some rules and live with them. But the latest imbroglio is disgraceful.

    It seems the US Bureau of Labor Statistics, in the CPI next week, will treat the subsidy received by those 800,000 car buyers who bought a car in the “Cash for Clunkers” program as if the price of a car fell by $4,500. Really? My tax dollars account for nothing?

    This does several things. It will decrease the inflation used to adjust the GDP for this quarter. Not the end of the world, but annoying But what really matters is that the CPI is used to calculate Social Security increases and interest paid on TIPS.

    If I tried to defraud one of my clients using such accounting legerdemain, I would be shut down, sued, and taken to court (at the minimum) by the host of regulators who look over my shoulder. And I should be! You don’t make such changes in the rules to your own benefit. But that is what the BLS did. This policy should be overruled immediately. There are enough deflationary forces in the world without having to artificially create some more. OK, off the soapbox and onto the banking system.”

  2. Tim Manni Says: September 21st, 2009 at 4:58 pm

    Chris,

    Sorry it took me so long to respond. You wrote that this is from John Mauldin…can you forward the link to where he states this — he says some interesting stuff, that if it turns out to be true, is worth a post on this blog.

    for example:

    “It seems the US Bureau of Labor Statistics, in the CPI next week, will treat the subsidy received by those 800,000 car buyers who bought a car in the “Cash for Clunkers” program as if the price of a car fell by $4,500.”

    “It will decrease the inflation used to adjust the GDP for this quarter.”

    This could potentially really throw off the Federal numbers. I’d like to read more on this — send me any info you got.

    Thanks a lot,
    Tim

  3. Mitch Says: October 25th, 2009 at 12:48 am

    I think it was worth it, for two reasons. One, it did stimulate car sales for at least a month, which this country needed. Two, even though the environmental impact really is minimal, it got a lot of gas guzzlers off the roads, and every little bit helps.

    As far as the drastic decrease in sales, that one is a statistic that means absolutely nothing. It kind of reminds me of the days when I’d have a CFO come to ask me why cash was low in a particular month. I always told him it was because revenue was low two months ago, since our days in receivables were around 60. My bet is that if that figure was compared to the number of sales from the previous year in the same month, it would either be equal or pretty close.

    Stats; at least 95% of them are wrong. lol

  4. Tim Manni Says: October 26th, 2009 at 10:23 am

    Mitch,

    To me it just seemed like a waste of a couple billion dollars to increase sales for one month.

    You’re right, that stat I believe was from the same month a year prior (I think).

    Always good to hear from you,
    Tim

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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