Cash for Clunkers: Worth an Encore in 2010?
Author:
Author: . Rogers" href="http://www.articlesbase.com/authors/c.j.-rogers/340080.htm">C.J. Rogers
The nightly news and the nations headlines trumpeted the spike of increased sales volume at Americas auto dealerships this summer thanks for the Consumer Assistance to Recycle and Save (CARS) Act of 2009, a key component of the U.S. government's economic stimulus program. The numbers were bold and exciting $3 billion invested, and 690,000 fuel-guzzling cars traded in for more efficient and eco-friendly new cars. Lenders benefited, tax revenue was generated, dealers saw more customers, and most importantly, automakers got a quick infusion of sales to help them negotiate the difficult down economy, at a time when Michigan was enduring the nations highest unemployment rates and GM was navigating bankruptcy.
CARS, also known by its trendier moniker Cash for Clunkers, was an expensive emergency solution to an economic crisis that the country was facing, and the program may have helped achieved its main goals: the economy did not sink into a deep depression, and hundreds of thousands of inefficient cars and trucks were taken off the road.
With a crisis averted, its a good time to consider whether another round of CARS Act investment could be practical to help the economy. Fiscally speaking, the facts wouldnt support an encore performance of Cash for Clunkers. Proponents of the CARS Act know its benefits extend beyond the numbers to environmental gains and increased consumer confidence. But there are many reasons why the CARS Act shouldnt be repeated anytime soon based on economic factors.
First of all, industry analysis of the CARS Acts impact demonstrate that the program truly added only 125,000 incremental car sales in 2009, or sales to people who wouldnt have purchased a car at all in 2009. The remaining 565,000 automobiles purchased under the program were planned anyway, based on an analysis of automaker run rates by automotive research firm Edmunds. While the CARS Act may have inspired additional sales at a time when the economy needed the boost, the vast majority of sales would have come about in due course in 2009. In a down economy, the CARS Act created incentive and opportunity to buy new rather than drive older, less-efficient cars. The CARS Act also created extra incentive for buyers to consider fuel efficient cars.
Because the CARS Act rewarded purchases of fuel-efficient cars, the act predominantly benefitted automakers that are best known for their fuel-efficient cars. That put Detroits automakers at a disadvantage and narrowed the opportunity for GM, Ford and Chrysler. Fords recent success has been in the truck and SUV categories, and CARS Act buyers in large measure went with import nameplates including Toyota, Honda and Subaru. These brands all have stateside production facilities, and the boost that the CARS Act provided certainly provided short-term benefits to their U.S.-based suppliers and employees. The downside, however, is that the CARS Act did not benefit Michigan nearly as much as some hoped upon its passage.
Cash for Clunkers did very little to help American automakers fix their core problems: namely the adverse cost drivers and high operating leverage that put the big three automakers at a severe competitive disadvantage in the first place. GM in particular was saddled with a high debt ratio and pension and legacy commitments to retirees in a time where there are three retirees for every working GM employee. GMs cost drivers were higher, too, compared to newer rivals. GM requires more labor hours per unit versus its competition, its numerous brands compete with each other and serve to segment and cannibalize sales and increasingly add to the companys opportunity costs for new R&D projects. The results: higher fixed costs and greater variability in the companys cash flow. When the economy went south, the force took the big three with it in large measure. In GMs case, only direct government investment and bankruptcy proceedings to help the company shed its losing assets protected the company from going under. Given the results, Edmunds estimates the cost for each new car purchased under the CARS Act to American taxpayers was $24,000. The average transaction price for CARS Act purchases was just over $26,000. Those numbers dont merit a return of Cash for Clunkers. Many other motivating factors, including environmental and consumer confidence metrics, would need to be considered before repeating that popular and costly program. About the Author:
Cotton Fabric Serving Best For Your Patch Working And Quilting Needs Perfect Wedding Florist With Exotic Wedding Flowers Quality Quilting Fabrics At Your Fingertips Refinance Mortgage Rates To More Affordable Terms Turn To Refinancing A Mortgage For Debt Consolidation Winter Promotional Merchandise - 5 Great Ideas To Promote Your Company Reliance Industries Limited Solar Group Bags Photovoltaic Qualification Reputation Management Contact Machtech 2010 To Benefit Vadodara Sme Engineering Units Kolkata Apparel Units Getting Back On Track Gurgaon Packers Movers For A Hassle Free Relocation Remote Customer Service Solutions for Your Business Plan You Shifting With Mumbai Packers And Movers