Edmunds' analysis of the C.A.R.S. program is the real Clunker aka don't believe everything that you read
November 02, 2009
– Comments (5)
I'm one of the biggest bashers of government spending there is and I know that Uncle Sam is one huge, inefficient beast. As a taxpayer I was offended by the government's recent Cash for Clunkers program (I'd be lying if I said that the part of me that works in the industry didn't like the program after seeing billions of dollars wasted on the financial sector).
Having said this, one always has to consider the source of the information that when they see a report like this in the news:
Cash for Clunkers Results Finally In: Taxpayers Paid $24,000 per Vehicle Sold, Reports Edmunds.com
There is no doubt that the true per unit cost of the C for C program was more than the average base government credit, but trust me the Edmunds.com estimate is flawed (it's way too high).
Edmunds isn't exactly known in the industry for its fantastic analysis. They like to squawk about how they have PhDs working there, which doesn't surprise me because anyone with familiarity with the industry and any common sense would look at some of the things that come out of Edmunds and say huh?
Look at the numbers logically. Using Edmunds' light vehicle sales figures from this press release, which quite possibly are wrong knowing them, light vehicle sales jumped by nearly 540,000 in the two month period after the program was introduced. Let's say that there was a 113,000 unit negative pull-ahead factor in the month after the program ended. That leaves a sales increase of approximately 425,000 from Clunkers. Even if one assumes that the industry was recovering prior to the introduction of the Clunkers program, and I believe that it was, and that sales would have improved, they would not have improved by nearly as much as 425,000 over that two month period. Looking at the program objectively it generated nearly double and possibly triple the number of sales that Edmunds.com claims it was responsible for.
Furthermore, When assuming that sales were pulled forward from the final months of 2009 by the program Edmunds used their own internal sales forecasts for those months, which are most likely wrong. There was a month or two hangover from the program because dealer inventory was depleted, however no one knows for certain what sales would have been like if the program did not exist. Edmunds.com is making an assumption.
One could just as easily assume that the Clunkers program generated consumer excitement and made people more interested in buying a new vehicle. This sort of thing happens all the time when an innovative, major new incentive program is introduced. For example, when General Motors introduced 0% financing for up to 5 years for the first time after September 11th, or when it introduced Employee Pricing for everyone the sales of the entire industry rose, including the sales of manufacturers who weren't running similar programs. All of the talk about buying new vehicles in the news, commercials, etc... increased consumer awareness and got people thinking about buying a new vehicle who might not normally have done so.
One could also assume that the Clunkers program made the economy look better than it really is, boosting consumer confidence, which in turn boosted auto sales.
I don't know which, if any of these things happened. My point is that the Edmunds numbers use assumptions, which are the optinion of an organization that has been wrong a million times in the past.
Edmunds is taking a hot political issue that is receiving all sorts of press, making some weak assumptions, and using the headlines that it is generating from this statement for its own gain. Geee, I wonder if Edmunds.com's site traffic has increased since it published this report. I bet you a dollar that it has.
My $0.02.
Deej
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