September 02, 2009
– Comments (5)
Except, of course, when it helps them get a new car or a house. Then, it's just fine. Even if it comes to $43k per extra home sold, or $7k per extra car.
While I'd agree the govt was guilty of greatly helping to pump up the home market from 2002-2006, via creating cash through the Fed, the SEC allowing huge leverage at the five (now gone as) investment banks and squashing state's rights to enforce predatory lending laws via federal pre-emption from the OCC; the cash for clunkers was an animal of a whole different sort. CARS was designed to clear inventory so that the auto companies did not have to lay more people off- which of course comes with it's own huge costs. With a leaner inventory, the car companies are now about to the point of being "just in time" manufacturers, which is what they need to be. Certainly there is no guarantee that they don't screw up again, but we'll see. Hopefully they find equilibrium and some stupid greedy execs (at GM in particular) don't just use all the subsidies the government (us) has given them to boost short term numbers and their own bonuses.
I heard a Michigan auto reporter discussing this and she seemed to think the automakers where going to ask for more car stimulus.
Now that I've written that, it looks quite filthy.
Somehow I have hard time picturing GM's "just in time " manufacturing.
Moreoever, if they went through all the trouble of laying off union workers, there is no way they'll bring them back. They'd rather build a plan in China.
All the "clunkers" did is bring the demand forward. Now nobody is going to be buying cars for the next 3 months. How are they are going to "just-in-time" manufacture for that? it is very hard to stop the plant once operational. they ramped up produciton and now they'll end up with oversupply in 3 months again.
Cash for clunkers merely borrowed demand from the future. Problem was oversupply of cars, building less car was the solution. Selling them for less by subsidizing them only compounds the problem.
Problem was oversupply of cars, building less car was the solution.
While I agree that "cash for clunkers" and related programs in Europe simply borrow demand from the future, they have not really changed the dynamics of building less car.
From 1986--2007, annual vehicle production in the U.S. was 10-12 million per year (except 1991, when it fell to 9 million). Even factoring in the "cash for clunkers," production this year will be less than 6 million vehicles. This is the lowest level since 1961.
Annual sales from 1999-2007 were 16.5-17.5 million. This year, total sales will be 10 million and the forecast is for only 12 million in 2010. In 2008, sales were 13.4 million. They are building less car and will continue to build less car.
So, I can agree that programs like Cash for Clunkers basically just kicks the recession can down the road, It has not prevented building less car. And, borrowing demand from the future, when the economy hopefully is a bit healthier, might not be such a bad thing.
Was it worth the price? Probably not, but given the economic condition during the winter, I was not opposed to government stimulus.
However, the economic free-fall that seemed very real from roughly October through April is over. Now that things have stabilized, there is absolutely no reason for an extension of the program. I'm sure the auto makers would love for government to subsidize their business, but as long as the economy continues to improve, there is no justifiable reason for continued subsidy.