Sunday, August 30, 2009

The party's what?

Sacramento, California -- Now that the Cash for Clunkers party is over, people throughout the auto industry are asking: Was it worth it?

Overall, I'd have to say "yes."

After all, you can't sneeze at nearly 700,000 new-car sales generated within less than a month by the federal program that gave consumers rebates of $3,500 to $4,500 for showing up to turn in their old cars.

Now that consumer traffic at U.S. dealer lots has dropped off the table in the days after Cash for Clunkers wrapped up, there's all sorts of analysis that Cash for Clunkers really wasn't needed, that Americans already were poised to purchase new cars. Pent-up demand, analysts said, was at a fever pitch before Cash for Clunkers.

Well, maybe.

To say that consumers would probably have started buying new cars without Cash for Clunkers doesn't really dovetail with the evidence. Simply put, consumers nationwide have been sitting on the sidelines for more than a year -- a natural byproduct of watching their relatively humble investments crushed in the stock market dive. And jobless people don't tend to go out and buy a new car with their jobless benefits.

Frankly, I've never put much stock in "pent-up demand," a frequently used statistical analysis term that has a lot of gray area. Just because I look hungry does not mean I'm ready to go out and drop $50 on a steak dinner. I'm more likely to save money and grab a bite at home .... at least until my household budget looks a little better.

Yes, it's true that many car dealers are grumbling about slow reimbursement on their Cash for Clunkers deals from the government. And that is a problem. But it's hardly a surprise in a national red-tape nightmare set off by a rush to dealer lots nationwide. The government probably would have been smarter to hand over a percentage of funds to automakers and let them administer the rebate proceeds to dealers. The automakers were already geared up to do this.

The post-Cash for Clunkers period is likely to produce decreased consumer demand for new cars, but it's hard to put all the blame for that on the federal program. Cash for Clunkers simply prompted consumers to get off the couch and buy a new car, because the price was suddenly in range (especially when additional incentives were piled on top of the rebates). The buyer blitz was needed for an industry that was lumbering along the bottom of the ocean looking for a boost.

Real progress is going to take more time. Job losses, particularly in car-crazy California, have cut into car sales. Until the economy improves, more people are employed and fewer workers see their buying power cut down with pay cuts and furloughs, don't expect annual new-car sales to come anywhere near the 17 million-units-a-year pace that was business as usual just a few years back.

I would expect used-car sales to bump up now, which they already were doing before Cash for Clunkers showed up.

Looking back, consider Cash for Clunkers a good party that a recession-weary public and car industry needed. Now, it's time to get back to work.

It's been ever-thus....MG

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