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Archive for the ‘cash for clunkers’ Category

Are We Having a Blowoff?

Posted by Larry Doyle on November 16th, 2009 11:24 AM |

Blowoff“If you can keep your head when all about you are losing theirs…”

Retail sales rebounded strongly this month posing a 1.4% gain. Good news, right? In an attempt to provide a degree of sanity to what has become an extremely volatile report, let’s break this report down a little bit further.

Recall that our automotive sales have bounced around tremendously over the course of the last three months due to the Cash for Clunkers program. Auto sales soared in August given Uncle Sam’s handout. Once Uncle Sam shut that spigot off, auto sales dropped like a stone in September. In October, auto sales had a respectable bounce. All this said, there is no respected economist who doubts that the Cash for Clunkers program pulled demand forward. In the process, it has skewed the overall retail sales readings. What is the American consumer doing away from the auto sector? Let’s navigate. (more…)

“Cash for Clunkers” Final Grade: F

Posted by Larry Doyle on October 5th, 2009 3:31 PM |

How did that “Cash for Clunkers” program ultimately grade out? While auto dealers were relishing the traffic that overwhelmed their showrooms, the fact is the program was nothing short of a government redistribution charade masked as an economic stimulus. If this type of program is the best we can do, we are in worse shape politically and economically than I thought.

While some pundits would sing the praises of the “Cash for Clunkers” program, fundamentally I have a difficult time understanding how real value is created when current value is destroyed in the process. Additionally, there was never a doubt that this program was merely pulling demand forward. How do we know this?

U.S. auto sales declined 23% for the month of September on a year over year basis. Sales for GM (-45%) and Chrysler (-42%) vehicles declined precipitously while Ford (-5%) declined only marginally. What does that indicate? Car buyers want to purchase a vehicle in which they have confidence in the manufacturer.

The Wall Street Journal sheds further light on this ‘clunker’ in writing, Clunkers In Practice:

Cash for clunkers had two objectives: help the environment by increasing fuel efficiency, and boost car sales to help Detroit and the economy. It achieved neither. According to Hudson Institute economist Irwin Stelzer, at best “the reduction in gasoline consumption will cut our oil consumption by 0.2 percent per year, or less than a single day’s gasoline use.” Burton Abrams and George Parsons of the University of Delaware added up the total benefits from reduced gas consumption, environmental improvements and the benefit to car buyers and companies, minus the overall cost of cash for clunkers, and found a net cost of roughly $2,000 per vehicle. Rather than stimulating the economy, the program made the nation as a whole $1.4 billion poorer.

The basic fallacy of cash for clunkers is that you can somehow create wealth by destroying existing assets that are still productive, in this case cars that still work. Under the program, auto dealers were required to destroy the car engines of trade-ins with a sodium silicate solution, then smash them and send them to the junk yard. As the journalist Henry Hazlitt wrote in his classic, “Economics in One Lesson,” you can’t raise living standards by breaking windows so some people can get jobs repairing them.

In the category of all-time dumb ideas, cash for clunkers rivals the New Deal brainstorm to slaughter pigs to raise pork prices. The people who really belong in the junk yard are the wizards in Washington who peddled this economic malarkey.

I concur. What do you think?


Cash Register Closing on Clunkers

Posted by Larry Doyle on August 19th, 2009 2:17 PM |

The Wall Street Journal is reporting that the Cash for Clunkers program is soon winding down. It highlights this development in writing, White House Will Outline Plan to End ‘Cash for Clunkers.’

The Obama administration will release a plan this week to wind down its “cash for clunkers” incentive program, signaling that one of Washington’s fastest-acting stimulus programs is nearing an end.

Transportation Secretary Ray LaHood said Wednesday he would disclose within two days updated figures on the program, including how much of the $3 billion in funding was left. He said he would also offer a blueprint for how the administration will wind down the program to ensure all vouchers issued by dealers are reimbursed by the government before the money runs out.

“They’re going to get their money,” Mr. LaHood said, responding to dealers’ complaints of payment delays. “There will be no car dealer that won’t be reimbursed.”

He said the government has “more than 1,000 people processing paper 24-7,” to speed payments to dealers, and continues to add workers.

Mr. LaHood previously said that he expected the program to last through Labor Day, Sept. 7. He declined to say Wednesday whether he still expected the program’s budget to last that long. (more…)

‘Cash for Clunkers’ Misrepresentations Lay Groundwork for Fraud

Posted by Larry Doyle on August 10th, 2009 3:12 PM |

Fraud begins with intentional misrepresentation. From there, revenues generated become captivating, the fraud grows, and society suffers.

The potential for fraud is my greatest concern with the ‘Cash for Clunkers’ program. Why?

With the economic tide having gone out, no surprise that more frauds have been exposed. Additionally, given the challenging economic times, we should not be surprised to see intentional misrepresentations laying the groundwork for more frauds in the future. Against this backdrop, I am not surprised by a Bloomberg report, Cuomo Tells Dealers to Stop Deceptive Clunkers Ads:

New York Attorney General Andrew Cuomo today told 40 auto dealers across the state to stop issuing misleading advertisements for the Federal Car Allowance Rebate System, known as “cash for clunkers.”

The government-funded clunkers program, which seeks to boost the economy, allows dealers to credit $3,500 or $4,500 for trade-ins that may be worth less. Dealers’ ads mislead consumers into believing that their trade-in vehicle qualifies for the program when it does not or that they are eligible for a several-thousand-dollar rebate, Cuomo said in a statement today.

Letters by Cuomo order the dealers “to immediately modify promotions and advertisements to clearly explain how the program works,” he said. Included on his list were dealers for General Motors Co., Chrysler Group LLC, and Ford Motor Co.,  as well as foreign car companies.

In metropolitan New York, Cuomo named Plaza Hyundai Ltd., City World Toyota and City World Hyundai, while in Westchester he cited Smith Cairns Ford Inc. of White Plains and Central Avenue Chrysler Jeep Dodge.

One would have to be quite naive to think intentionally deceptive ads are not widespread in our country. Are car dealerships hoping to target these ads to those who may be less financially savvy? If so, these misrepresentations are particularly heinous.

I would encourage AG Cuomo and other attorneys general to be intentionally aggressive in meting out penalties and punishments for those involved. As word of mouth is the best form of advertising and publicity, I only hope that this post is widely disseminated.

The need for honesty and integrity never takes a vacation.

Please share all thoughts and comments.


FYI: Addendum to my August 5th post “Fair and Fraudulent Mortgage Lending.” Bloomberg is now reporting Freddie Mac Says Its Loss from Taylor Bean May Be ‘Significant.’

There is a reason why it smells so bad at low tide!!

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