August 2009 Sales Figures At a Glance

My Crystal ball sees a dreadful fall coming as most of those August sales were just the pipeline for future sales flushed out early. What did Obama accomplish, really?

1) 1 Billion less gallons of gas consumed (imported) each year and burned (Less Green House gases
2) Safer Fleet
3) Jobs
4) Sales and Excise Tax Revenue for local communities
5) Economic kick-start to continue 1-4 above and get out of this mess.

"3) Jobs"

If you prefer to view it from this Keynsian slant, then by all means, but let me point something out. The White House (more specifically the White House Council of Economic Advisors)stated that the effect of Cash-for-Clunkers was to "create or save 21,000 jobs in 2009".

$3,000,000,000/21,000 jobs = $142,857.14 / per job

As far as the economic results, that is not a trivial problem. You have to first analyze the number of "incremental cars". The dealer and the car company receive full profit benefit from cars that otherwise would not have been traded in, but they only receive a marginal benefit due to time value of money for those that were simply traded in early (most cars). That last requires a level of market knowledge that is essentially impossible.

The analysis of the costs of the program are not trivial either- the actualy deadweight loss is somewhat difficult to analyze. There is some offsetting effect of taxes garnered through sales, but a quick order of magnitude analysis shows deadweight loss would generally exceed that rate. So the actual cost is likely somewhat higher than the reported costs of the program.

All of that completely ignores distribution effects. There are parts of the country where this has been a complete success no doubt (I'm guessing Michigan and perhaps Alabama), but there are also places where there is no dobut that society is poorer for it.

To call this an economic success, or a kick-start, is simply hubris. There is a lot of information missing from the discussion.

Hey, with the gas saved, at $3/gallon, the program pays for itself year 1.

You can say that the additional scrap yard work including material recycling can also be included under the jobs saved or created.

"Hey, with the gas saved, at $3/gallon, the program pays for itself year 1."

You really cannot know that for the same reasons as I listed above. In fact it is a more complicated analysis because it requires that you know the impact of the program on people's preferences. A car that without the program would have been traded in a week later is only a credit to the program in terms of MPG for about 230 miles- ignoring preference issues.

Because people generally don't plan beyond a certain point, by in large the incremental demand increase curve would be a declining function -proabably close to exponential- that likely hits zero at around 8 months (people would generally be financially unable to pull forward a purchase like a car more than that). If we bias it towards your assertion and pull that out to 1 year and make the curve a triangle use the average fleet MPG increase over the clunkers program (an admittedly incorrect asumption- we simply cannot know this) you get about $900 million to $1 billion over that year. Although, I did use the average for the past 12 months for gas prices and add $.50- which is about $2.75/gal.

That is, of course, wrong as we simply don't know enough. Having said that it is biased towards your answer (with the exception of the gas price) it is also nominal money and not real, which is also biased toward your answer.

Chewy,

"You can say that the additional scrap yard work including material recycling can also be included under the jobs saved or created."

I really cannot comment on that, because I don't know what was actually considered in the white House analysis. I would imagine that it included, but I don't actually KNOW that.

Analysis Paralysis?

Yep, i agree. Reality will hit all manufacturers this month. I smell big rebates coming towards the end of the month.

$142,857.14/job, because they are "Republican" jobs: Salespeople, Sale managers, F&I managers, Dealership owners etc. who don't need government, right?

Just the ones saved by government intervention so far.

C4C Scorecard

Winners:
------
Toyota
Hyundai
Honda
Ford
Audi (Surprise winner)
Mazda
VW
Pontiac (Yes Pontiac!)

Losers:
-----
GM ex Pontiac
Chrysler
Mini (Surprise loser)

Did not Play
---------
BMW
Lexus
Mercedes (But still a winner)
Infiniti
Nissan (not enough effort or product?)
Acura (who?)

The numbers don't seem to show that, do they.

I was a little surprised about Mini also. But then again, it makes sense when you think about it. Overpriced and not enough MPG bang to justify the compromises that come with that size car. Sounds like the "cool" factor of Mini is being devalued during this recession big time, and consumers are instead buying what makes economic sense.

Mini has been in trouble for a while. This may really start triggering the alarms over at BMW

What also should be pointed out in these "flash in the pan" style stimulii is impact on production costs in the short and long term. The most efficient way to plan and staff what ever you are making is to have a constant stream of orders or levelized production. This program while it did deplete vehicle inventories did so in a rapid manner which is whiplashing back up the supply chain now. We make alot of parts for these vehicles and I see the spike in Aug orders and hoops we are jumping through staffing back up and running OT to cover the spike in orders. Running OT to keep up on a short term spike is not cost effective. Now enter Sept/Oct when we know the orders will drop again...what do we do? We have too many employees on the floor and too few orders...yep layoffs again.

What needed to be done was some longer term solution like reducing sales taxes on vehicle sales or making interest deductable that would have long term positive effect on sales volumes. Car sales will happen eventually at a certain rate as vehicles need to be taken out of service and replaced but by artificially accelerating this on the short term only results in sales drops after.

"The most efficient way to plan and staff what ever you are making is to have a constant stream of orders or levelized production."

This is assuming that you are in the middle of the production cycle for the cars that were eligible for CFC. If you're at the end of a model's cycle and you have inventory, this kind of stimulus would seem well-timed. Even if not, I'm not certain that the cost of ramping up production for a known period of time isn't in some portion offset by the value of revenue now versus later. It's difficult to say without some numbers.