The Cash for Clunkers Hangover
The Cash for Clunkers program has come to an end. Designed to increase sales in a morbid auto industry, it did exactly that. With the program ended, sales for September have been down. Is this really a surprise? It shouldn't be.
You've undoubtedly read the headlines. Ford's sales for September are down five percent from August when the Cash for Clunkers program was still in place. Oh, the auto industry is doomed! What an overreaction. The Cash for Clunkers program has received its fair share of criticism, but most people seem to ignore that it had two purposes and achieved both.
The first purpose was clearly to get people back into the showrooms. There is little doubt that goal was achieved. People flocked to dealers to turn in their old clunkers for new vehicles. The demand was so high that the Congress had to fund the program twice. For an auto industry that had seen two of the big three in bankruptcy, it was a much needed shot in the arm.
The Cash for Clunkers program had a clear second purpose as well. Americans were shell shocked at the time. They reacted by doing something most economist thought impossible. Yes, Americans actually started saving their money. Heck, we started hoarding it! This was primarily due to the fact none of us had any confidence in the economic outlook. Being 'in cash' made sense. Well, this attitude served to further bury the economy as retail sales plummeted in just about every niche. By getting people back into the consumer markets with programs like Cash for Clunkers and the First-Time Homebuyers Tax Credit, the government rightly sought to stimulate spending.
Ah, but what about now? With the end of the Cash for Clunkers program, auto sales have dropped. This is a surprise? Of course they dropped. A 5 percent drop at Ford, however, is hardly the kind of economic collapse we saw in 2008 in the industry. The auto industry will be stagnant, but stable, as it slowly recovers with the rest of the economy over the next year or two. This may not sound like much, but it is a vast improvement over where things were a year ago when many wondered if only Ford would survive the year.
