Wednesday, August 12, 2009

Cash for Clunker demand waning

Auto inventories tight, U.S. "clunker" interest slips

When GM & Chrysler went through bankruptcy, I said that the government will do whatever it can to make itself look good in order to present an "image" that GM and Chrysler were worthwhile "investments" for the taxpayers. Cash for Clunkers was one of the ideas that Government Motors came up with. After a couple strong weeks of demand, Cash for Clunkers is waning. It simply pulled forward demand from people who had cars worth less than $4500 and arbitraged the difference.

We should expect that GM and Chrysler will continue their losses unless the government decides that they need to give away $10,000 to help GM and Chrysler, which is a likely outcome for these zombie car companies. In an environment where people are unwilling and/or unable to take on additional debt, any durable goods sales that require credit are going to level off. Just think about this rationally for a second about what C4C is saying:

Our cars are so mispriced that the government has to pay you $4500 out of your neighbor's wallets to buy them.

Expect the doubled C4C rebate soon along with a doubled $16,000 homebuyers credit. All that these programs do is add to the national debt and incentivize car makers and homebuilders to build above the natural demand for their products. This is insanity and will likely cause more bubbles in housing and auto inventories next year. This is why government needs to get out of incentivizing consumption and do what it does best, nothing.

1 comment:

Anonymous said...

Actually the demand isn't waning, it's dealers enthusiam that's waning. There are sooooo many problems with the way this program is administered, it would take me forever. Most dealers have been paid for 0-2 deals and have 100+ on the road that is a possible loss of $450,000 if they don't pay up. I'm living a nightmare